Capital requirements

The Financial Stability Oversight Council said the mortgage giants may need a bigger capital cushion than their regulator has proposed, but stopped short of designating them as “systemically important financial institutions.”

The Federal Housing Finance Agency's proposal could undermine the companies’ mission to support the housing market and penalize consumers in underserved communities, industry and consumer groups say.

The much-anticipated proposal, which would not go into effect until after Fannie Mae and Freddie Mac are privatized, reflects Director Mark Calabria’s aggressive efforts to get the companies on a strong financial footing.

Director Mark Calabria, who abandoned the Fannie and Freddie capital proposal written by his predecessor, said he expects a revised framework to be ready “very soon.”

FHFA Director Mark Calabria said the health crisis will complicate the release of a proposal establishing new capital requirements for Fannie Mae and Freddie Mac.

If banks are unable to weather the economic fallout from the outbreak, calls for more dramatic reforms could get louder.

Banks may be protected from a direct hit, but they have invested in vehicles that include such loans, potentially exposing them to defaults.

With policymakers focused on ending Fannie Mae and Freddie Mac’s conservatorship, their regulator is reorganizing key units and adding staff to position itself for the long term.

The regulator said the investment bank and financial services company will help in the process of strengthening Fannie Mae and Freddie Mac’s capital standing for their eventual exit from conservatorship.

Federal Housing Finance Agency Director Mark Calabria discussed the possibility of having Fannie Mae and Freddie Mac operate under a consent order to allow the government-sponsored enterprises to be able to raise capital.

A risk-based capital rule for Fannie Mae and Freddie Mac is expected to top the agenda in 2020 as the companies’ regulator executes plans for their release into the private sector.

Allowing the mortgage giants to retain profits resolves a short-term capital shortfall, but how much capital they would need after exiting conservatorship is still the bigger question.

The proposed reforms of Fannie Mae and Freddie Mac have gotten all the attention, but the administration also wants to scale back the Federal Housing Administration, expand its capital cushion and adopt risk-based pricing. Some of the ideas have former agency officials concerned.

The mortgage industry will be looking for answers when Treasury and HUD unveil reports on housing finance reform, but the Trump administration’s plans could also raise a whole new host of questions.

EJF Capital is launching its seventh securitization of subordinated bank debt, via a CDO vehicle that allows smaller banks to raise capital more cheaply and efficiently for regulatory purposes.

In his first public policy speech as director of the Federal Housing Finance Agency, Mark Calabria stressed that Fannie Mae and Freddie Mac will have to raise significant capital via a public offering and take other steps in order to escape government control.

Mark Calabria, who could be confirmed as early as this month, is expected to focus on changes to Fannie Mae and Freddie Mac’s conservatorships to let the mortgage giants keep more of their profits.

As policymakers consider administrative reforms to Fannie and Freddie, they must address the problem of capital arbitrage to avoid overleveraging the mortgage system.

The revised blueprint by Moelis & Co. LLC incorporates a pending regulatory capital plan for the mortgage giants.

“We have actually discouraged banks from innovating,” FDIC Chairman Jelena McWilliams said in announcing a move that other agencies have made.