Mortgage

Mark Calabria: New director changes course for FHFA

Exclusive sit down with new director on future of FHFA

Who do you like more, Fannie or Freddie?”

Federal Housing Finance Agency Director Mark Calabria sat at the head of a long table where he frequently meets with his staff to take deep dives into what F1they are seeing at the FHFA.

His hair was slicked back, his posture relaxed. His eyes were pensive, amused. Silence hung in the air and for a second, it seemed as though he might just answer. But only for a moment.

“I like them all,” Calabria said.

President Donald Trump appointed Calabria to take the helm of the FHFA on December 12, 2018. The Senate then officially confirmed Calabria in April by a vote of 52 to 44 as head of the agency.

Since then, Calabria has not been silent on his plan to reform the FHFA and the entities it oversees – Fannie Mae and Freddie Mac.

Having grown up in rural America, gone to school in suburban America and lived in urban America, Calabria brings not only professional experience from the housing industry, but also personal experience.

Calabria served as deputy assistant secretary for regulatory affairs at the Department of Housing and Urban Development during former President George W. Bush’s administration. He has also held positions at Harvard’s Joint Center for Housing Studies, the National Association of Home Builders and the National Association of Realtors.

GSE reform

“Never again.”

That is the stance Calabria takes when he recalls the events of September 2008 when the economy collapsed, and former President George W. Bush took Fannie Mae and Freddie Mac into conservatorship.

Talks on GSE reform continue to heat up as many speculate an end to the conservatorship could be on the horizon.

In fact, before even taking over as head of the FHFA, Calabria posted a blog where he addressed the Mortgage Bankers Association’s plans for the future of Fannie Mae and Freddie Mac. In the blog Calabria even famously called for the end of the conservatorship.

Back in 2017, during a wide-ranging discussion about the government’s role in housing, Calabria, who was then Vice President Mike Pence’s chief economist, revealed that the Trump administration is “committed” to ending the conservatorship of the government-sponsored enterprises.F1

Calabria said the Trump administration is determined not to hand Fannie and Freddie in conservatorship over to the next administration, but cautioned that the process will not be easy.

“If it were easy to get GSEs out of conservatorship, it would have been done already,” Calabria said at the time.

In fact, in an interview with HousingWire, Calabria explained he preferred not to put a timeline on removing the GSEs from conservatorship.

“The exit from conservatorship is absolutely process driven, not calendar driven,” he said. “If you try to set a date with something, it just creates pressure to push stuff out that’s not ready. Fannie and Freddie are not going to leave conservatorship until they’re ready to leave conservatorship.”

“I think it’s more important to do it right than to do it right now,” he said.

Nevertheless, Calabria expressed his hope that Fannie and Freddie will be out of conservatorship or well on their way by the time his gig as director of the agency comes to an end.

F1“I see my role predominantly is to structure that roadmap, and then Fannie and Freddie are the ones who got to get in the car and drive it,” Calabria said, explaining that while some of the objectives that need to be accomplished to remove the GSEs from conservatorship rest on his shoulders, others are dependent on Fannie and Freddie themselves.

“Fannie and Freddie are just stuck in a box,” the director said. “They don’t control their own destiny. Part of what I want to be able to do is not give them full control but give them some influence.”

As Fannie and Freddie are given more and more control of their destiny, such as being able to raise capital, they will grow closer to exiting conservatorship.

But while some of the process will depend on actions taken by Fannie and Freddie to prepare themselves for leaving conservatorship, the FHFA also has some heavy lifting to do.

For example, over the past few years, the FHFA has exercised its enforcement by giving directives to the GSEs. Once out of conservatorship, all of these directives will fall away, former Freddie Mac CEO Donald Layton told HousingWire recently.F1

Calabria explained that his team is working on these directives, and is determining which ones will need to stay, and how to enforce that, and which ones will no longer be needed once the GSEs exit conservatorship.

“What are we doing under conservatorship needs to continue under different rubric – what needs to continue and what doesn’t?” Calabria said.

The process of reforming the system and releasing the GSEs could take time, but Calabria explained he has been in Washington long enough to not be discouraged by the wait. He has a realistic view of how long things can take, and will not be disheartened by bumps in the road.

“I’m here for five years, that’s my time horizon,” Calabria said. “There’s a lot to get done, but I believe if one starts now and is very methodical about it and very structured about it, that a lot can get done in five years.

Beyond the GSEs

“The first duty of the director is to ‘foster a competitive, efficient, resilient mortgage market,’” Calabria cited. “I do have a broader perspective and a broader duty than just Fannie/Freddie, or the federal banks, but to foster a more competitive market.”

Shaping the future of Fannie Mae and Freddie Mac is a large part of the FHFA director’s job, but it is far from his only responsibility.

The FHFA is still new, turning 11 years old at the end of July, but Calabria has big plans for the agency.

Taken seriously

Before conservatorship, Fannie, Freddie and the federal home loan banks were regulated by the Federal Housing Finance Board and the Office of Federal Housing Enterprise Oversight, who’s regulatory authority did not have near the reach of FHFA. Calabria explained that OFHEO was not taken seriously by the government and therefore by the entities it oversaw.

“This agency has been taken far more seriously. We’ve made a lot of progress. It’s important for me to cement that progress in place, because if we don’t have that, we’ll end up back where we started,” Calabria said.

Company culture

Calabria also hopes to improve and merge the company culture at the FHFA. When FHFB, OFHEO and the finance board Silo merged to create the FHFA, their company culture did not mesh, leaving a strange mix of three separate cultures.

“You have those three different corporate cultures, and one of my objectives over five years is to forge a common culture out of that,” Calabria said. “If you can have a single, more unified, shared perspective on the markets, on regulation, I think we could be far more effective, and I think we could be far more integrated as an agency.”

Cutting edge

When Calabria walks out of his office at the end of his term, he said he wants the FHFA to be considered an agency of progressive thinkers.

“I want it to be in a spot where, for instance, if you’re a young lawyer coming out of law school and you have an offer from the Fed or the OCC, that you may be willing to entertain an offer to come work at FHFA,” Calabria explained. “I think it’s critical that we have a deep research function and are viewed as cutting-edge thinkers.”F1

Calabria explained that other entities, such as the Federal Reserve, are well regarded for their research. He explained that he will continue to modernize the agency and its technology while making full use of its data sets to ensure it is producing revolutionary thinkers who are shaping the housing industry for the better.

He also explained there are other areas – outside of the FHFA itself and even outside the housing industry – where he can use his influence to improve the overall economy and keep the housing market growing.

Calabria said the market is based on three factors: land, labor and loans.

And while loans would fall under Calabria’s jurisdiction, for the other two, he plans to use his position to influence.

But Calabria isn’t the only one in Washington taking this approach.

In June 2018, HUD Secretary Ben Carson traveled to his hometown of Detroit for the groundbreaking of the nation’s first EnVision Center.

Carson had previously announced HUD would be launching EnVision Centers that would be located on or near public housing developments and would act as hubs for what it calls the four key pillars of self-sufficiency: character and leadership, educational advancement, economic empowerment and health and wellness.

Calabria echoed these sentiments when he explained many factors work together to create a better economy, boost family income and therefore encourage and allow more Americans to buy homes.

“Ten basis points is not suddenly going to make it easier to build in San Francisco,” Calabria said, explaining that many of the solutions to the affordability crisis are beyond his jurisdiction, but not beyond his influence.

By working with jurisdictions on their zoning laws and helping create a better environment for builders, Calabria can encourage areas to work with the federal government to help ease the affordability problem.

He also emphasized the importance of labor, saying more work should be put in to helping students choose trade professions to ease labor shortages and open up options for those who don’t plan to attend a traditional four-year college.

“A 10-basis-point difference in rates is not going to create a lot of plumbers or carpenters there, so how do we fix the whole system instead of just focus on the lending?” Calabria questioned.

Calabria explained his goal is to take a more holistic approach to housing – fixing what he can at the FHFA, and talking about other sectors in the hopes of influencing the parts he doesn’t directly oversee.

“Secretary Carson is obviously out there talking about these other things, other people are talking about these other things,” he said. “I think we’ve got some momentum and hopefully can focus on that.”

But he pointed out that his quest is not without selfish motive for the agency he oversees.

“I do have a vested interest, not just because it’s the right thing to do, which it is, but also because it directly influences – either helps or hobbles – the mission of this agency,” Calabria said.

Moving forward together

The future may be uncertain, but Calabria’s path is clear. He is prepared to handle the hurdles that could come up, and his vision is set.

Calabria explained that under his vision, Fannie Mae and Freddie Mac would be ready to catch the market if it crashes, not leading the pack.

“I don’t think economists are very good at calling turns in the cycle, I certainly am not forecasting a downturn, but I think you have to prepare for one as part of your responsibility,” he cautioned.

If and when a downturn comes, Calabria’s vision would have Fannie and Freddie counter-cyclical and ready to catch the market, rather than pro-cyclical and driving the market to the bridge.

“My view tends to be: If it’s something that the rest of the private sector can do, then perhaps they should do that,” Calabria said. “I think it’s hard to be a counterweight and a support for a system in a time of stress if you’re at the front of the pack going over. Fundamentally, the role of Fannie and Freddie and the federal banks is to be that safety net, that source of liquidity in a stressed environment.”

Calabria said he is ready to bring a new focus to the agency.

But through his plans, Calabria hopes that the FHFA will maintain a positive relationship with the GSEs – a sharp contrast to the relationship the GSEs had with their regulators pre-crisis.

“It’s really important if there’s a post conservatorship, that what we have is a continuation of that cooperative relationship with the entities, and that we don’t go back to pre-conservatorship,” he saidF1. “Some of this is going to be solidifying the authorities and the credibility of this agency.”

As Calabria moves forward with his goals, he is working closely with his team to ensure every voice is heard at all levels of the agency.

The FHFA holds weekly board meetings in a room that fits about 14 or 15 employees from all different ranks and sections of the agency so that Calabria can hear what they have to say.

“As a bigger issue, I’ve spent a lot of time in my career probably doing an abnormal amount of reading and thinking about institutions that have failed,” Calabria said. “And where I’m going with this is that nine times out of 10, there always seems to be somebody in the organization who has the critical information and it just never gets to where it needs to go to avoid a failure.”

For example, he is currently looking into servicing, which he describes as a critical failing and weak spot during the financial crisis. While the government has made a lot of regulatory moves in the sector, this was done when Calabria was out of the government field. He is now going through and taking deep dives to see what, if anything, should be changed in the FHFA’s servicing policies.

“Doing my due diligence, making sure that I think the important parts of the system are working the way they should is a really critical function for me at this point,” Calabria said.

The director has strong views and a strong vision, fed by years of work in the housing industry – both in government and for the private sector. But he is still on a constant search for more knowledge, making sure every move he makes is a step in the right direction.

“I want to make sure that I hear a lot from the employees of this agency as well as outside stakeholders before we move too far too aggressively,” he said. “I’ve tried to map out the plan and a roadmap where I think we’re going, but want to hear and make sure we do this in the most effective, most appropriate manner.”

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