Calabria: Ending the net worth sweep is step one of GSE reform, IPOs are an option

Made his remarks to a packed room at the MBA Secondary Conference

The much-anticipated session with Federal Housing Finance Agency Director Mark Calabria at the MBA Secondary Conference in Manhattan Monday did not disappoint. No, he didn’t reveal a timeline for releasing the GSEs from conservatorship, but his mission and intense focus were clear: The status quo isn’t an option.

Calabria emphasized that the time for housing finance reform was now, while the economy and the housing market are strong. Calabria said he is awaiting a report from President Donald Trump, which will help him develop a roadmap for reform.

He said he anticipates collaborating with the Treasury Department and working with Congress, but "the centerpiece of this plan has to be a strategy to end conservatorship of Fannie and Freddie. I want to move to a new reform structure, one that’s more competitive and works for taxpayers and supports financial stability.”

Calabria said the GSEs would exit conservatorship when they have “an excess of capital.” To gain that capital requires a suspension of the net worth sweep, which Calabria said is “step one.” But building capital through retained earnings alone would be too slow, and Calabria suggested that the GSEs could raise capital through initial public offerings.

Calabria recognized that some of what he sees as his responsibility is outside his current power to accomplish and said he is seeking the same power other regulators already have. He noted that the FDIC did not have to ask Congress to move banks out of conservatorship.

“The perspective in the past that we must wait on Congress is not one I share. There are a number of things I can’t do, where we need congressional authority. But there are a number of things I can do,” Calabria said.

While Calabria said he wants to empower the GSEs to regain their financial footing, he also wants to increase competition within the secondary market.

“I’m a big believer in competition…If we have a large number of players, any one of them doesn’t become too big to fail,” Calabria said.

He is calling on Congress to give him the power to grant charters so that anyone who meets the requirements can get one and he can “open up the market to competition so new players can enter the market.”

“One of the responsibilities of the [FHFA] director is to help create a competitive mortgage market, in which all the regulated entities operate under the same set of rules. They should be successful because they are the best, not because the rules are in their favor. [In order] to be fair, my objective is to make sure there are no special favors, and I am taking administrative action to make sure everyone is playing by the same rules,” Calabria said.

Calabria, who previously served as Vice President Mike Pence’s chief economist, has given a number of interviews over the past several days, but the session at the Secondary Conference was his first address to the mortgage industry.

When Calabria was sworn into his office, he expressed his support for President Trump’s call to end the conservatorship of Fannie Mae and Freddie Mac and reform the country’s housing finance system.

“The recently signed Presidential Memo lays out a constructive path for mortgage finance reform,” Calabria said. “I look forward to working with the administration on this issue.”

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