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FHFA director: Fannie, Freddie building $300B combined capital reserve

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Financial Stability, Legislation, Nonbank Financial
Friday, July 29, 2022
Federal Housing Finance Agency (FHFA) Director Sandra Thompson informed the House Committee on Financial Services that Fannie Mae and Freddie Mac are working to build a combined capital reserve of $300 billion.

This was during a committee hearing, titled “Housing in America: Oversight of the Federal Housing Finance Agency,” which focused on the financial state of the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. The GSEs have been in conservatorship under the supervision of FHFA and the Department of Housing and Urban Development (HUD) since 2008.

Thompson has served at FHFA for more than nine years, serving as the acting director for the past year before being sworn in as director in June 2022. Before that, she spent most of her career in various roles at the Federal Deposit Insurance Corp., including as director for the Division of Risk Management Supervision.

Both Democrat and Republican committee members welcomed Thompson, even after some Republican members of the committee sent a co-signed letter pressing Thompson on the conservatorship and when it might end.

“Since 2008, FHFA has directed reforms to their practices and standards, management and transfer of risks, underwriting and loss mitigation policies, and the enterprises’ securitization infrastructure,” Thompson said in a prewritten statement.

“Because of changes in the Senior Preferred Stock Purchase Agreements (PSPAs) between FHFA and the Treasury Department, the enterprises are retaining more of their earnings and building capital,” Thompson added. “These PSPA changes, coupled with robust comprehensive income, have significantly boosted net worth for both enterprises, although there is still a long way to go to meet regulatory capital requirements.”

Fannie Mae’s capital reserves increased from $14.6 billion at the end of 2019 to $51.8 billion by March 31, 2022, Thompson said. In the same period, Freddie Mac’s capital reserves increased from $9.1 billion to $31.7 billion.

Combined, that’s $83.5 billion in reserves, or about 27 percent of the $300 billion target.

Rep. Bill Posey (R-Fla.) pressed Thompson on whether FHFA had any plans to remove the Fannie Mae and Freddie Mac from conservatorship. She replied that while the agency continues to work with the GSEs to improve their financial conditions, the ultimate decision on ending the conservatorship rests with Congress.

Rep. Blaine Luetkemeyer (R-Mo.) continued this line of questioning by asking Thompson if the $300 billion combined capital reserves would be a point at which the conservatorship should end.

“Well, I think that when the enterprises meet their capital targets, that’s one component of exiting conservatorship,” Thompson said. “There are other factors that need to be taken into consideration. Certainly, conversations with the Treasury about the senior preferred shares. There are conversations with the Federal Reserve about certain policy issues. There are just a number of issues that really need to be worked through. Meeting the capital target alone just won’t answer those questions.”

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