In the job for just over a month, Federal Housing Finance Agency Director Mark Calabria on Monday set an aggressive timeline for shaking up the housing finance system.
Calabria said he aims for Fannie Mae and Freddie Mac to begin the process of exiting conservatorship and rebuilding capital by the beginning of 2020.
“By Jan. 1 of next year, my hope and expectation is that we will be on the path to a new regime where the GSEs can start to build capital,” Calabria said at a Mortgage Bankers Association conference in New York. “At that point, the path out of the conservatorships will depend not on the calendar, but on Fannie and Freddie meeting the mile markers we set out for them.”
Making the case for urgent reform of the government-sponsored enterprises, Calabria argued that now is the time to prepare for “the inevitable downturn” in the housing market by addressing the housing system’s current vulnerabilities.
"The status quo is no longer an option. The status quo is over," he said. "And my arrival at FHFA should be seen as the opening bell for change."
In previous comments, Calabria has said that fundamental reform of the GSEs should be undertaken by Congress, but he repeated Monday that he is prepared to act independently of lawmakers to move the reform ball forward under existing authority.
"While I’m committed to working with Congress, I’m not going to wait on Congress. In fact, if you look at the statute, it contemplates an end to the conservatorships," he said. "The model is very similar model to how the FDIC operates. The law requires me to do what I can within my powers to fix the GSEs and then release them from conservatorship — and that’s exactly what I intend to do.”
Yet he made clear that an optimal reform package must include legislation.
“New legislation passed by Congress and signed by the president would enable the kind of comprehensive, bold reforms we need to change the structure of our broken model,” he said.
Among key reforms that Calabria expects to push for from Congress would be the authority for FHFA to grant more charters to competitors of Fannie and Freddie.
“Right now, the market power exercised by the duopoly of Fannie and Freddie undercuts competition,” he said. “But that would likely change if Congress were to authorize FHFA to issue more GSE charters, which would allow more competitors to enter the industry. Other federal regulators have the same authority — and FHFA should too.”
Calabria also signaled his intent to limit Fannie and Freddie from expanding into new ventures. He said he wants to put an “end to the era of charter creep,” and that FHFA is actively reviewing new activities taken on by Fannie and Freddie. Both GSEs debuted pilot programs in the last year that addressed private mortgage insurance, but were met with criticism that they had overstepped the bounds of their charters.
“Anything that falls outside the GSEs’ core business model and mission will be curtailed or ended altogether,” said Calabria.
Some lawmakers have expressed hesitation with enacting the comprehensive GSE reform that Calabria and others are seeking, especially during a period of healthy economic growth. Sen. Sherrod Brown, D-Ohio, the ranking member of the Banking Committee, told the Financial Times in an interview last week that “the status quo” of conservatorship “is not particularly bad.”
Calabria disputed that assertion.
“This is exactly the kind of shortsighted thinking that fueled the last housing market collapse,” he said.
