WASHINGTON — Small lenders and consumer groups sent a letter Thursday calling on the Treasury Department and the Federal Housing Finance Agency to allow Fannie Mae and Freddie Mac to build up capital reserves.
The two mortgage companies have had to do a quarterly sweep of their net income to the Treasury as a condition of their conservatorship, but as they wind down their capital buffers, the government-sponsored enterprises could be forced to borrow from a taxpayer-backed line of credit.
“We urge FHFA to suspend the dividend payments to the U.S. Treasury this month,” said the letter, which was sent to Treasury Secretary Steven Mnuchin and FHFA Director Mel Watt.
The letter noted that Fannie and Freddie are scheduled to fully deplete their capital buffers by 2018, which would mean even a small downturn in the housing market would force a draw and could be perceived as a government bailout.
The fear is that Congress would act brashly, causing uncertainty and resulting in imperfect housing finance policy.
In a speech last year, Watt called the precarious capital position “the most serious risk and the one that has the most potential for escalating in the future.”
The letter was authored by the Community Home Lenders Association, Community Mortgage Lenders of America, Corporation for Enterprise Development, Leadership Conference on Civil and Human Rights, League of United Latin American Citizens, Leading Builders of America, NAACP and National Community Reinvestment Coalition. They said that if tax reform includes a lower corporate tax rate it further increases the likelihood of a draw because it would change the accounting treatment of Fannie and Freddie’s tax-deferred assets.
“Quite simply, a draw by the Enterprises on their U.S. Treasury commitments is avoidable" and "would be politically regrettable,” the letter said.