Reform of Fannie, Freddie should fall to Congress: FHFA nominee

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WASHINGTON — The nominee to run the Federal Housing Finance Agency appeared to lean toward having Congress reform the government-sponsored enterprises, despite recent speculation that the Trump administration was readying a plan that could be carried out without legislation.

Mark Calabria, now an aide to Vice President Mike Pence, told Senate Banking Committee members he would “carry out the clear intent of Congress” should lawmakers enact GSE reform, rather than impose his own vision. He also said he was unaware of a White House plan discussed by acting FHFA Director Joseph Otting.

“The very broad changes that I think need to happen in mortgage finance system have to be done by Congress and I would pledge to work in consultation and in partnership with this committee moving forward,” he said at his nomination hearing Thursday.

Calabria, who was nominated to succeed former Director Mel Watt, would take the helm of Fannie Mae and Freddie Mac more than 10 years after the mortgage giants were put in conservatorship.

The Senate committee also questioned former private attorney Bimal Patel, who was nominated for assistant Treasury secretary of financial institutions, and two nominees for the board of the National Credit Union Administration.

The questioning of Calabria, who in the past has been a critic of the GSEs, included a discussion of remarks attributed to Otting signaling the administration may try to release the mortgage firms from conservatorship without legislation. Congress has been at an impasse over GSE reform for years.

Otting, who is also the comptroller of the currency, reportedly told agency employees at an FHFA staff meeting last month that “Mark has signed off on” an administration proposal to overhaul the housing finance system.

But under tough questioning from Sens. Sherrod Brown, D-Ohio, the ranking member of the committee, and Chris Van Hollen, D-Md., Calabria insisted that he had not signed off on any proposal and that he was not even familiar with a proposal.

“My read of what [Otting] said is to convey a sense of urgency to the FHFA staff,” said Calabria. “I believe what he’s referred to in terms of me signing off, I believe he was referring to my longstanding loud support for reform. And I believe what he was trying to convey to the staff was essentially a pep talk of ‘We will move forward.’”

Calabria also told Van Hollen that he hasn’t “seen anything that looks like" a Trump administration plan, though he mentioned that once it became clear that he would be the FHFA nominee, he removed himself from any internal conversations about GSE reform.

The nominee, who formerly worked at the Cato Institute and on Capitol Hill, is frequently associated with his past criticism of the GSEs and his support for their impact on the mortgage market. Yet the hearing appeared to help his chances of confirmation, and he is expected to win enough support from the Senate's GOP majority.

Lawmakers in both parties applauded his experience in mortgage finance. Senate Banking Committee Chair Mike Crapo, R-Idaho, highlighted Calabria's “long history of working across the aisle." Likewise, Calabria praised Crapo's framework for housing finance reform released earlier this month, which would create a system of multipe mortgage guarantors to compete with Fannie and Freddie.

“Throughout his career, Dr. Calabria has worked to champion market reforms that benefit consumers, and enhance the safety and soundness of our housing finance system,” Crapo said in his opening remarks.

But Democrats on the committee expressed concern about statements Calabria had made while serving as the director of financial regulation studies at Cato, where he had advocated for eliminating the 30-year fixed-rate mortgage and was skeptical of GSEs' affordable housing goals.

In particular, several senators focused on a blog post Calabria wrote in 2012 for Cato in which he referred to homeowners that benefited from principal reductions as “deadbeats.”

“In Trump’s America, we see a lot of name-calling, and I’m hopeful that as a Trump nominee, you’ll sort of back off that part of your life to label people like that,” Brown said.

But Calabria told Democrats he does plan to preserve the affordable housing goals if confirmed.

“If you are confirmed as director of the FHFA, will you commit to preserving strong affordable housing goals?” said Sen. Elizabeth Warren, D-Mass.

“Within the confines of the direction of the statute, absolutely, yes,” Calabria replied.

Calabria also vowed to preserve the 30-year fixed-rate mortgage, despite his prior writings suggesting otherwise.

“I will absolutely, if confirmed, guarantee to you today that at the end of my five-year term, the 30-year-fixed rate mortgage will be widely available,” he said. Calabria added that he himself has a 30-year mortgage and he would like to keep it.

“I’m the last person that’s trying to disrupt the mortgage market,” he said. “I’m trying to stop the mortgage market from disrupting itself.”

Still, Calabria sounded open to taking certain steps to curb Fannie and Freddie's footprint. For example, he would not walk back his desire to lower the maximum loan amounts that can receive Fannie or Freddie backing.

He told Sen. Bob Menendez, D-N.J., that “it’s not within the discretion of FHFA to set the loan limits” and that it is instead the purview of Congress. However, he added that if he became aware of an interpretation that allowed the FHFA director to set loan limits, he would consider such changes.

“I believe reducing the loan limits would be consistent with the objectives of a conservator, so I think it’s important to not prejudge if someone brings me new legal information and I have to be able to evaluate that in a new sense,” he said.

Calabria said he supported the GSEs' having significantly more capital, but he added that the FHFA director cannot unilaterally require an increase in the capital reserves under the current terms of the preferred stock purchase agreements.

"While I do believe that the regulator can make a number of changes that can try and get the GSEs on a stable footing for the next inevitable downturn so that we can minimize losses and minimize damage done to families, I do believe that the fundamental things that need to be changed about the system have to be changed by Congress," Calabria said.

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GSE reform Housing finance reform Affordable housing Mike Crapo Senate Banking Committee FHFA Fannie Mae Freddie Mac