FHFA Director Says Agency is Preparing GSEs to Exit Conservatorship, But No Timeline is Offered
Written By: Joel Palmer, Op-Ed Writer
The acting director of the Federal Housing Finance Agency (FHFA) said during an interview last week that the agency is preparing Fannie Mae and Freddie Mac to exit conservatorship, but there are a number of details to work out before that happens.
FHFA Acting Director Sandra Thompson was interviewed by Dennis Shea, executive director of the J. Ronald Terwilliger Center for Housing Policy at the Bipartisan Policy Center (BPC). The hourlong session covered a number of topics, and Shea saved the topic of the enterprise’s conservatorship until the end of the interview.
“I don’t think anybody ever expected the enterprises to be in conservatorship for 14 years,” Thompson said in response to the question about the future of the conservatorship arrangement.
When the 2008 financial crisis hit, the combination of plummeting home prices and rising mortgage defaults put at risk mortgage-backed securities backed by Fannie and Freddie. This required a $188 billion bailout from the federal government, which took over ownership.
Thompson said several details still need to be worked out before the conservatorship arrangement can end.
“We’re preparing the enterprises to adjust to supervision in a way they would be regulated outside of conservatorship,” said Thompson. “The safety and soundness of the enterprises, making sure their operations are really in tip-top condition, which they are, making sure their financial condition is as expected and that they never have to rely on the federal government again is really important.”
Thompson also iterated that the structure of the enterprises outside of conservatorship has to be determined before they can be released.
“The pricing is really important. If the enterprises ever get out of conservatorship, everybody knows it’s going to be the largest IPO ever. But they’re going to be questions investors will want to know. One, what is going to be the role of the government? Are they going to continue to have a PSPA (Preferred Stock Purchase Agreement)? Are they going to be working under some sort of consent order? Are they going to be a utility? Do you have rate setting authority. Some of those questions I cannot answer.”
In addition, Thompson continued, other details that will need be determined include: “Are they going to be subject to the single counterparty requirements of the (Federal Reserve), where some
of the largest SIFIs (Systemically Important Financial Institution) can only hold 15 to 25 percent. How much MBS securities do they hold and do we have to make changes for that? Anytime you involve two government agencies, having those conversations can be quite challenging.”
In addition to the conservatorship discussion, Thompson said other FHFA priorities include determining how the GSEs can contribute to fixing the current housing supply issue, as well as focusing on getting more diversity in the mortgage industry, including appraisers.
The Bipartisan Policy Center is a Washington, D.C. based think tank that fosters bipartisanship by combining ideas from both parties. Its Terwilliger Center for Housing Policy advances public policies that support broad access to affordable housing.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
