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MortgagePolitics & Money

Fannie and Freddie need “significant capital” to leave conservatorship, Mnuchin says

But he discusses how they could be released by consent order

In a hearing before the House Financial Services Committee Wednesday, Treasury Secretary Steven Mnuchin said no definite plans have been made for the future of Fannie Mae and Freddie Mac, but discussed the idea that they could be released from conservatorship before their full capital levels are reached.

In its Final Capital Rule released in November, the Federal Housing Finance Agency set the capital requirements for the government sponsored enterprises’ tier 1 capital in excess of 4% to avoid restrictions on capital distributions and discretionary bonuses. That means as of June 30, 2020, the enterprises together would have been required to maintain $207 billion in common equity tier 1 capital, $265 billion in tier 1 capital, and $283 billion in adjusted total capital.

But now, Mnuchin said it is possible for the GSEs to be released before they hit these capital requirement levels.

“Let me just be clear, despite the fact that the director and I are having conversations, we’ve made no decisions at Treasury whatsoever yet,” Mnuchin said. “We are contemplating. There could be a scenario where at some point in between basically the zero capital they have, and the full capital requirement, there would be a consent order and they would be released subject to consent order. But as I’ve said yesterday, there’s got to be significant capital for them, in my opinion, to be released.”

Even as it was becoming clear that President-elect Joe Biden would win the presidency, the FHFA maintained that it would continue on its path to remove the mortgage giants from conservatorship.

“Since Director Calabria began his tenure in April 2019, FHFA has worked as quickly as possible to fulfill our statutory mandate of responsibly ending the Enterprises’ conservatorships,” a spokesperson from the FHFA told HousingWire at the time. “As an independent agency, FHFA will continue this work by following the milestones laid out in our recently finalized Strategic Plan, while working with the Enterprises to ensure they are meeting all the goals laid out in their Scorecard and Strategic Plan.”

After the FHFA released the final capital rule in November, speculation swirled as to whether the administration would make a quick move to remove Fannie Mae and Freddie Mac from conservatorship before Biden’s team takes over on Jan. 20, 2021. But Mnuchin said no decisions have been made on potential actions at the end of President Donald Trump’s administration.

If the GSEs are released from conservatorship under a consent decree, they would no longer be in conservatorship, but would still have some government-mandated restrictions.

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