September 12, 2019

Calabria tells Berger FHFA wants to keep pricing safeguards in housing finance reform

Calabria, Berger
FHFA Director Dr. Mark Calabria (left) and NAFCU President/CEO Dan Berger discussed housing finance reform issues at NAFCU's Congressional Caucus Wednesday. (Photo by Greg Dohler)

NAFCU President and CEO Dan Berger – on stage at NAFCU's Congressional Caucus with hundreds of credit union leaders in the audience – questioned Federal Housing Finance Agency (FHFA) Director Dr. Mark Calabria on the agency's expectations for housing finance reform now that the Treasury Department and Department of Housing and Urban Development (HUD) have released their plans.

"NAFCU appreciates the support of Dr. Calabria in housing finance reform efforts and his willingness to engage with credit unions on these issues," Berger said after the interview. "We look forward to continuing to work with him, the administration and Congress to implement reform plans that protect credit unions' needs in the housing finance system."

During the conversation, Berger reiterated NAFCU's concerns about the housing finance reform provisions related to competition, specifically that if banks are chartered as new guarantors to compete with the GSEs that they might pull out of the secondary mortgage market during a downturn.

"Bringing competition into the market means we don't have to put all our eggs in one or two baskets," Calabria explained. "Having multiple avenues will make the system more sustainable, but we need to have control."

Calabria further clarified that during the government-sponsored enterprises' (GSEs) conservatorship, the FHFA worked to ensure uniform pricing and avoid practices of volume-based pricing discounts that were in place leading up to the housing crisis. He said he wants to ensure that some of these safeguards stay in place to level the playing field for little players.

"We're looking to see what we can hardwire in for pricing discrimination," Calabria said. "We want additional authorities from Congress to do this, because there are some legal questions about what we can do outside of conservatorship."

Berger also asked Calabria about the GSEs' capital reserves and if they should be designated as systemically important financial institutions (SIFIs). Calabria said that as a member of the Financial Stability Oversight Council (FSOC), which was established under the Dodd-Frank Act to identify risks to the U.S. financial system's stability, he didn't want to pre-judge the designation.

"Fannie and Freddie should have an FSOC investigation," Calabria said, adding that he thinks "evidence is there for them being 'too big to fail.'" He said his goal to get them to rebuild capital as quickly as possible in order to get them a comfortable foundation before the next downturn.

The FHFA is currently considering a rule for GSE capital requirements, which Calabria said he views as a prerequisite before ending their conservatorship. NAFCU, commenting on the proposal, offered its general support but recommended the FHFA allow the GSEs to submit capital restoration plans as allowed under the Housing and Economic Recovery Act – a provision that makes clear Congress envisioned a path to remove the GSEs from conservatorship. The association also believes that restoration plans shouldn't be approved until Congress has agreed to codify certain safeguards.

Calabria said the agency is going through comments and will determine whether it needs to re-propose the rule, or if the changes align with the comments. He expects the final rule to be made no later than the second quarter of next year.

Asked by Berger about his vision for the agency, Calabria said he's proud of the success the agency has made in regulation and its relationship with the GSEs just five months into his term as director.

"We trying to make sure we're ready for the next downturn," Calabria said. "We have a responsibility to make sure Freddie and Fannie are ready for the downturn. Part of that vision is getting them out of conservatorship, and as a regulator, we have a responsibility to do what Congress says."

Calabria added that he's hopeful the FHFA will end the GSEs' net worth sweep, which stops them from being able to rebuild capital, by the end of the year and that having congressional action on some of the housing finance reform issues would clarify some issues.

Tuesday, Calabria testified on housing finance reform before the Senate Banking Committee along with Treasury Secretary Steven Mnuchin and HUD Secretary Ben Carson.