Calabria: Fannie Mae may be privatized before Freddie Mac, or vice versa

FHFA Director tells Reuters that government could stagger privatization

Now that he is officially installed as the director of the Federal Housing Finance Agency, Mark Calabria is taking GSE reform head-on and seems quite serious about ending the conservatorship of Fannie Mae and Freddie Mac.

Earlier this week, Calabria spoke at length about possible methods for getting the GSEs out of government hands. First up, according to Calabria, will likely be the suspension of the net worth sweep, wherein Fannie and Freddie send their profits each quarter to the Department of the Treasury.

Regardless of the chosen method, the privatization of the GSEs may not happen at the same time, Calabria told Reuters this week.

According to Reuters, Calabria said one of the paths under consideration is staggering the schedule for privatization.

From Reuters:

It may be preferable to stagger that process due to the complexities involved in getting the government-backed firms, which have different business models, ready for private ownership, said Mark Calabria, director of the Federal Housing Finance Agency, which oversees Fannie Mae, Freddie Mac and the U.S. housing finance system.

“I’m open to seeing what makes sense…that kind of sequencing hasn’t been decided, but obviously if you tried to engineer them both at the same time, you’re depending on more things going right at the same time,” he said. “One may be ready before the other, it just depends.”

As the Reuters article notes, Calabria spoke Monday at the Mortgage Bankers Association Secondary Conference in Manhattan, using the speech to lay out his vision for the end of conservatorship.

Calabria told the crowd that the GSEs would exit conservatorship when they have “an excess of capital.” Building up that capital will require a suspension of the net worth sweep, which Calabria said is “step one.”

But, according to Calabria, building capital only through held earnings would be too slow, and Calabria suggested that the GSEs could raise capital through initial public offerings.

Calabria also said that he may use the authority granted to him by his position to enact sweeping changes without Congress, something that his predecessor Mel Watt did not do.

“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,” Calabria said Monday. “But there are a number of things I can do.”

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