GSEs might operate under consent decree, Calabria says

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WASHINGTON — Federal Housing Finance Agency Director Mark Calabria raised the possibility Wednesday that Fannie Mae and Freddie Mac could operate under a consent order once they are freed from conservatorship while the government-sponsored enterprises raise additional capital.

A consent decree would allow the companies to technically exit government control, while also ensuring regulators have additional safeguards to ensure Fannie and Freddie raise the capital needed to completely operate in private hands.

“A consent order in my opinion is a tool in the tool box,” Calabria said at an event held by Women in Housing and Finance. “There has been no decision that that’s the route we’re going to go.”

A consent decree would be one way to allay concerns that Fannie and Freddie would be unable to boost capital to a sufficient level while still in conservatorship, he said, and could come into play after the GSEs reach the cap on their retained earnings.

In September, the Treasury Department and FHFA amended the government’s preferred stock purchase agreements to allow Fannie and Freddie to retain a combined $45 billion in earnings, after being permitted to only hold small capital cushions of $3 billion each for seven years.

But Calabria emphasized that nothing has been decided.

“It would be premature to say that’s the option that we’re going to go with,” he said, noting that the agency is close to hiring a financial adviser that will be able to assist the agency in evaluating a full range of options.

Calabria also raised the possibility of the FHFA entering a memorandum of understanding with the Department of Housing and Urban Development to ensure that there wouldn’t be any overlap between the GSEs and the Federal Housing Administration.

“There really is a commitment here to make sure … they aren’t competing in a manner that harms both of them,” he said. “I believe that that undermines the sustainability of FHA.”

Calabria added that he has met with HUD Secretary Ben Carson a few times on the issue, but said they are “very early in this process.”

“Nothing has been decided, but again, just trying to make sure that these are responsible players in the mortgage market,” he said.

A memorandum of understanding could also include some sort of agreement to share some of the FHFA’s technology with the FHA, said Calabria.

The FHA has been lobbying for years for more funding to upgrade its antiquated computer systems, and although it has received what the agency calls a “down payment” on updates, officials agree that much more work remains to be done.

“Some of this could potentially cover technology,” Calabria said of the potential memorandum of understanding, but again emphasized that no final decision has been made.

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Housing finance reform GSEs GSE reform Capital requirements Mark Calabria Ben Carson FHFA FHA HUD Fannie Mae