The Federal Housing Finance Agency (FHFA) earlier today requested that Congress grant it the authority to charter new government-sponsored mortgage guarantors to compete with Fannie Mae and Freddie Mac. The proposal was included in FHFA’s 2018 Report to Congress, which summarizes FHFA’s 2018 examinations of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (FHLBs).
The legislative proposal is included in an introductory letter to the report from FHFA Director Mark Calabria. The Director argues that Fannie Mae and Freddie Mac currently benefit from an unfair duopoly that hurts competition and innovation in the housing finance market. Allowing FHFA to approve new guarantors, similar to how the Office of the Comptroller of the Currency (OCC) grants charters for new banks, will increase competition and benefit consumers. Calabria recently indicated during media interviews and public appearances that he intended to seek such authority from Congress.
Calabria also suggests that Congress give FHFA the authority to examine third-party entities that do business with Fannie Mae, Freddie Mac such as originators and servicers. FHFA currently has no statutory authority to examine third-party partners of Fannie Mae and Freddie Mac. Any oversight that does occur is the result of provisions in the service contract between Fannie Mae or Freddie Mac and the third-party. In his letter, Calabria seeks additional flexibility for FHFA to define the terms it uses to establish capital and leverage standards for Fannie Mae and Freddie Mac.
Calabria urges Congress to advance housing finance reform legislation. Calabria has said in recent interviews that, should Congress not pass housing finance reform legislation by the end of 2020, FHFA will act unilaterally to remove recapitalize the firms and release them from conservatorship.
The bulk of the report, which was drafted before Calabria’s tenure began and which he was not involved in developing, outlines FHFA’s supervision of Fannie Mae, Freddie Mac, and the FHLBs during calendar year 2018, including their affordable housing activities. Most of the material was previously reported by FHFA in reports published earlier.