FHFA asks Congress for power to charter Fannie, Freddie competitors

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WASHINGTON — The Federal Housing Finance Agency has officially asked Congress to provide it with certain powers granted to other banking regulators, including the ability to charter additional competitors to mortgage giants Fannie Mae and Freddie Mac.

In the FHFA’s most recent report to Congress, Director Mark Calabria urged the Senate Banking Committee and House Financial Services Committee to take action on housing finance reform, encouraging lawmakers “to act alongside the administration and FHFA” in order to strengthen the ability of the government-sponsored enterprises to withstand an economic downturn.

“FHFA will set an ambitious agenda that ensures that the mortgage market and FHFA’s regulated entities do not return to pre-financial crisis business models,” Calabria wrote in an opening letter, which was released Wednesday along with the full report.

Calabria said that Congress should provide the FHFA with chartering authority, similar to that exercised by the Office of the Comptroller of the Currency, to approve competitors to Fannie and Freddie. He argued more competition would boost market stability and limit reliance on the GSEs.

“FHFA should have the same powers today, with the same flexibility, as other federal financial safety and soundness regulators,” he said.

Calabria has endorsed this idea previously in speeches since he took the helm of the agency in April. He told a Mortgage Bankers Association conference in May that chartering powers would put the FHFA on a level playing field with the other banking regulators.

Calabria said the FHFA's underlying statute also requires the agency to use capital definitions that are outmoded and restrict the regulator’s capabilities, which he said “requires undesirable work-arounds.”

“Amending or eliminating statutory capital definitions that apply only to the Enterprises, thereby providing FHFA the same flexibility as other financial regulators, would permit FHFA to develop more tailored and appropriate capital and leverage standards, for consideration by Congress, the Administration, and market participants when working toward housing finance reform,” he said.

Calabria said as recently as June 3 that he is still reviewing a capital framework proposed under his predecessor, Mel Watt, that would take effect only if the GSEs were to exit conservatorship. However, experts agree that the suggested capital standards are nowhere close to the bank-like capital Calabria has previously said Fannie and Freddie should hold.

But Calabria also encouraged Congress to preserve several elements of current FHFA policy dealing with the mortgage giants, such as the uniform mortgage-backed security, the use of credit risk transfers, and enabling lenders of all sizes to access GSE backing.

“Making sure FHFA’s regulated entities are well-capitalized, well-regulated and well-managed remains a critical task, and it must be done to allow them to withstand any future downturn in the economy,” Calabria wrote.

Other than Calabria's letter, the FHFA's full report covers activities by the agency in 2018. Since the director took the helm just this past April, he noted, the report "was largely prepared before my tenure."

"To that end, I am not able to endorse or represent any particular views or assertions in this report as my own, but did want to adhere to the June 15 statutory deadline," Calabria wrote.

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GSE reform GSEs Housing finance reform Minimum capital requirements Credit risk transfers MBS Mark Calabria FHFA Fannie Mae Freddie Mac