Calabria to Congress: Fannie, Freddie reform is urgent, critical and overdue

Mortgage

Mark Calabria only recently took over as director of the Federal Housing Finance Agency, but his strong views on the need to end the government’s conservatorship over Fannie Mae and Freddie Mac have long been known.

Now, the head of the FHFA is restating his case to lawmakers, outlining the reforms he views as necessary in his first annual Report to Congress since taking the helm at the agency.

Among the recommendations: Authorize competitors and grant FHFA the power to charter competitors, just like the Office of the Comptroller of the Currency can.

“The Enterprises’ current duopoly undercuts competition in the market,” Calabria wrote. “Increased competition would reduce market reliance on either Enterprise and enhance market stability, as well as benefit homebuyers.”

Calabria also urged Congress to strengthen the FHFA’s regulatory powers so that it can more effectively police other firms active in the housing market, like nonbank mortgage servicers.

Calabria said that currently, oversight of third parties that contract with the GSEs only exists through contract provisions, and that the ability to properly examine these parties is important.

Calabria wrote in the report’s opening that “taxpayers remain vulnerable and the time for comprehensive housing finance reform is now.”

“It will be critical to set a path for ending the conservatorships of the Enterprises in the near future while working with Congress and the Administration to transition to a reformed housing finance system,” he added.

The annual report also detailed the net earnings and comprehensive income of both Fannie and Freddie for 2018, with both posting sizable gains over the previous year.

Fannie was the standout, reporting a net income of $16 billion – up significantly from 2017’s $2.5 billion – and a comprehensive income of $15.6 billion – up from $2.3 billion the year before.

Freddie also fared well last year with an annual net income of $9.2 billion – up from $5.6 billion – and a comprehensive income of $8.6 billion – also up from $5.6 billion.

According to the report, 2017’s tax law can be credited for the jump.

“The increase was primarily driven by lower full-year 2017 income, which was due to the one-time provision for federal income taxes that resulted from the enactment of the Tax Cuts and Jobs Act of 2017,” the report stated. “Fannie Mae and Freddie Mac recognized approximately $9.9 billion and $5.4 billion, respectively, of federal income tax provision in the fourth quarter of 2017.”

With the GSEs now on solid footing, Calabria asserted the need for the agency and lawmakers to work together to remove them from conservatorship.

“Reform remains overdue, despite prior efforts, and we should view this task with some urgency,” he wrote. “I encourage Congress to pursue legislation to move our country toward a more sustainable housing finance system. These reforms should reduce the risk to the taxpayer, promote private sector competition, and support sustainable homeownership.”

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