Fannie, Freddie Capital Retention Agreements Announced

The Federal Housing Finance Agency (FHFA) and Treasury Department have announced that the government-sponsored enterprises (GSEs) will be allowed to retain more than their current $3 billion in capital, $25 billion for Fannie Mae and $20 billion for Freddie Mac.

FHFA Director Mark Calabria noted in statement issued Monday that “The Enterprises are leveraged nearly 1,000-to-one, ensuring they would fail during an economic downturn – exposing taxpayers once again. This letter agreement between Treasury and FHFA, which allows the Enterprises to retain capital of up to $45 billion combined, is an important milestone on the path to reform. “FHFA commits to working with Treasury in the coming months to amend the share agreements and further advance broader housing finance reform. These reform goals include limiting the government’s role in housing finance, increasing marketplace competition, focusing on affordable housing, and sustainable homeownership. The status quo is not an option. Now is the time to act.”

The GSEs were placed into conservatorship following the 2008 financial crisis. An agreement between the Treasury Department and the FHFA required the GSEs to send all of their income to the Treasury, but this obligation was going to leave the GSEs with no money in their reserves at the start of 2018. As a result, the GSEs were allowed to hold $3 billion in their capital reserves beginning in December 2017.

The Trump Administration recently released housing finance reform plans from the Treasury Department and Department of Housing and Urban Development.

CUNA supports the new capital agreements announced yesterday as part of a process designed to move the GSEs out of conservatorship.

“CUNA applauds efforts by the Federal Housing Finance Agency and the Department of the Treasury to modify the existing agreements and allow both Fannie Mae and Freddie Mac to retain additional capital,” said CUNA President/CEO Jim Nussle. “CUNA has been a long-standing proponent of federal efforts to ensure that any federal housing finance reform efforts are designed to ensure a smooth transition to any modified secondary market for mortgage loans for smaller lenders that also recognizes the importance of credit unions and the role they play in providing access to mortgage credit.”

CUNA and the state leagues strongly support housing finance reform principles that ensure community lenders such as credit unions are a part of the system, principles that include:

  • Equal accessto lenders of all sizes on an equitable basis;
  • Affordabilitythat incudes recognition of the fact that smaller lenders, such as credit unions, often meet mortgage needs that banks are unwilling or unable to address in rural and working-class communities that require greater flexibility in underwriting requirements and weigh against mandatory minimum down payments;
  • A reasonable and orderly transitionto a new housing finance system. Accordingly, efforts to transfer guarantee oversight authority to entities, such as Ginnie Mae, must honestly assess and plan for potential frustrations if not acknowledged, addressed, and corrected well in advance of any transition;
  • Strong oversight andsupervision to ensure the safety and soundness of secondary market entities;
  • Durability, by including an explicit federally insured or guaranteed component to ensure that, even in troubled economic times, the secondary mortgage market continues to exist; and
  • Preserving what works, such as cost-effective and member-oriented credit union mortgage servicing options, emphasizing consumer education and home-purchase counseling, and applying reasonable conforming loan limits that adequately consider local real estate expenses in higher cost areas.

The need to ensure credit unions’ continued access to a viable secondary mortgage market has been front and center during NJCUL Hike-the-Hill and in-district meetings with New Jersey’s congressional delegation.