The Federal Housing Finance Agency (FHFA) released its annual Report to
Congress
for 2019 on Monday. The report summarizes the FHFA’s activities
as regulator of the Federal Home Loan Banks (FHLBanks) and as both regulator
and conservator of the GSEs Fannie Mae and Freddie Mac. The report addresses
how FHFA has fulfilled its statutory responsibilities, the financial condition
of the GSEs and FHLBanks, and details the agency’s response in 2020 to the COVID-19
outbreak.

FHFA Director Mark Calabria again called on Congress to reform the nation’s housing
 financing system, saying that only legislative
action can address the flaws that were at the root of the 2008 financial crisis
and continue to pose risks to taxpayers and financial stability.  He said, “There are critical
vulnerabilities in our housing finance system that put taxpayers and our
housing market at risk. The financial stress on our mortgage markets caused by
the COVID-19 crisis is only the latest example.”

FHFA is asking to be
given additional regulatory and supervisory authority to prepare for the eventual
end of the GSE conservancy.
The agency reiterated its request for chartering
authority such as already in the hands of other federal financial regulators
such as the Comptroller of the Currency. This would enable FHFA to charter
competitors to the GSEs.

The report says that prior
to the financial crisis of 2008, the GSEs with their congressional charters,
size, and importance within the system, created the impression that they were “too
big to fail” and thus had the implied backing of the federal government behind
their own loan guarantees. Relying on that perception, each GSE was able to
borrow at interest rates close to that of the federal government while
maintaining unsafe and unsound levels of leverage. That and other regulatory
advantages over private-sector competition fueled their rapid growth, while their
leverage shifted risk to taxpayers, created moral hazard, and incentivized
excessive risk taking.

The ability for the FHFA to charter competition would move the
financial situation beyond the current duopoly market structure.
This is
critical to ending taxpayer bailouts of “too big to fail” institutions the
agency says. Competition would reduce the systemic importance of Fannie Mae and
Freddie Mac which would increase FHFA’s capacity to resolve either should they
become insolvent. It would also enable it to mitigate moral hazard, increase
market discipline, and protect taxpayers against future bailouts. Newly
chartered competitors would increase efficiency and innovation within the
national housing finance markets, driving down costs for borrowers and leading
to new products and advances in underwriting.

A generally available charter, available to each GSE and to
competitors would require all to support equitable access to the secondary
market.
To enhance safety and soundness regulation, FHFA should, like the
federal banking regulators, have the authority to revoke an FHFA-granted
charter in the event of ongoing mismanagement or other limited circumstances
that threaten safety and soundness.

“FHFA will continue to take administrative action, pursuant to the
Agency’s statutory responsibilities,” Calabria said, “to ensure that the
regulated entities operate in a safe and sound manner to foster liquid,
efficient, competitive, and resilient national housing finance markets.
However, only Congress can resolve the flaws in the structure of the nation’s
housing finance system. Reform is long overdue. The time to act is
now.” 

By Jann Swanson , dated 2020-06-16 11:00:43

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Courtesy of Mortgage News Daily

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