Who will replace Mark Calabria with FHFA?



Biden’s replacement of Federal Housing Finance Agency director Mark Calabria should significantly change the direction of government-funded businesses, and the game of guessing who will be named has begun.

The current FHFA Deputy Director Sandra Thompson was named to mail on an operating basis on Wednesday night. Possible permanent replacements for Calabria include: economist Mark Zandy and Julia Gordon, president of the National Endowment for Community Stabilization and former FHFA staff member.

The timing of Calabria’s formal replacement depends on the priorities of the Biden administration, but if what is happening at the CPA is any indication, Thompson is likely to jump into that role quickly, noted Ryan Wood, regulatory advisor to Covius Compliance. CFPB Acting Director Dave Waggio said “guns are rattling” as he was appointed to the post following the dismissal of Katie Kreninger. However, the CFPB has another, broader mandate.

Other key housing positions that the Biden administration has yet to fill include the Federal Housing Commissioner, who oversees the Federal Housing Administration, and President Jeannie Mae, a position that has remained permanently vacant since Ted Tozer. … left after President Obama left office.

Many who have reacted to the U.S. Supreme Court decision in Collins vs. Yellin, which was the catalyst for the dismissal of Calabria, immediately indicate that a number of important political issues remain unresolved.

For example, a court decision in the case did not support the claim filed by shareholders Fannie Mae and Freddie Mac, who argued that Preferred Share Purchase Agreements between the GSE and the US Treasury, which conducted what is commonly referred to as a net worth cleanup, was illegal. The PSPA allowed the federal government to take Fannie Mae and Freddie Mac into government during the Great Recession, while allowing them to remain publicly traded corporations.

Jesse Van Tol, CEO of the National Reinvestment Coalition, urged the next director to “urgently review a number of recent policies that undermine the GSE’s role in the market, mortgage rates and mortgage products, including the December capital requirement rule. and program and product limitations included in the January amendments to the Preferred Share Purchase Agreements between FHFA and the Treasury. “

Immediately after Thompson’s appointment, the executive director of the Community Housing Lenders Association, Scott Olson, sent her and Treasury Secretary Janet Yellin a letter urging them to suspend the January amendments. CHLA, which consists mainly of small and medium-sized non-bank mortgage lenders, previously interviewed several steps taken by the agency, claiming that they were a consequence of the January changes in the PSPA.

“The administration has made the pursuit of racial equality in home ownership central to its housing policy,” Olson wrote. “The PSPA volume limits are completely contrary to this policy.”

He argued that the purpose of the restrictions – to push more GSE-qualified loans into the private market – is irrelevant at a time when the country is looking to recover from the pandemic.

As part of the PSPA’s January revision, starting next year, a $ 1.5 billion cap on sales through the money window was imposed per lender per venture. This cap is intended to nudge larger lenders into the swap market and allow the money window to focus on smaller lenders.

But that amount is too small, as many of the smaller lenders have over $ 1.5 billion in business with Fannie or Freddie. Olson’s letter says the cap should instead be increased to $ 5 billion in any 52 weeks.

“The cleanup is a relic of the latest mortgage crisis,” David Dworkin, president and chief executive officer of the National Housing Conference, said in an interview. “There is no doubt that GSE should improve its capital position. Some of their profits should go to equity, but they also need to correct real inequities in housing markets. ”

A favorable decision that negated their bottom line would likely increase the length of time they would be released from guardianship. Be that as it may, a recent report from Keefe, Bruyette & Woods, which looks at the Calabria plan, is rated it will take 15 years accumulate enough capital.

With this decision, the existing GSE capital rule is likely to be revised, but not anytime soon, KBW analyst Bose George said in a report. “We expect that the GSE reform template developed by Marc Calabria will be sidelined. Although it will be possible to return to it in the future, we believe that GSE reform will no longer be a priority in the near future, ”he said.

The dismissal is a positive development for the mortgage market, George said. “The increased focus on supporting borrowers should help improve creditworthiness, which should help holders of mortgage credit risk, including mortgage insurers,” he said. “An increase in GSE presence (perhaps by lifting the 7% cap on resale homes and real estate for investors and / or by removing an unfavorable 50 basis point market commission on refinancing) will have a positive effect on mortgage volumes, which should help initiators mortgage loans and title insurers ”.

But any impact is likely to be modest and potentially imperceptible in a market that is already sharply declining.

On the other hand, the potential increase in GSE presence if the January amendments are canceled will not be noticeable in the market because the 7% cap was only put in place this year. “Finally, lifting the $ 1.5 billion cash window limit could be a small negative for eligible mortgage lenders. But even in this case, the restriction came into effect only this year, so it probably has not yet brought significant benefits to correspondent creditors, ”said George.

The Supreme Court ruling was somewhat endorsed by the Free Market Competitive Entrepreneurship Institute as it opposed the sweep, but CEI officials indicated they were not entirely happy with the outcome.

“It is sad that the court did not provide any remedy to the shareholders of Fannie and Freddie, and instead the case was sent back to the lower court to decide whether the shareholders should receive something for the harm they suffered,” said Devon Booker. attorney at CEI.

CEI Senior Fellow John Berlau praised Calabria for ending the asset cleanup.

“Its ‘regulatory framework’ sets the course for the privatization of GSEs and reduces their competitive edge over private housing finance organizations,” Berlau said. “His successor should have listened to the excellent leadership of the Calabria GSE.”

As for Fannie Mae and Freddie Mac, this decision should lead to at least one overarching change when it comes to their work in the short term.

“They went about their business with a focus on recapitalization and custody exemption,” said NHC’s Dworkin. “This is inappropriate at this time.”

The Supreme Court’s View of the CFPB and FHFA
The ruling of the Supreme Court must was not a surpriseconsidering what was said earlier in the decision on the constitutionality of the CFPB.

“In the FHFA ruling, the court did not overturn or revoke the previous government agreement on the grounds that the agency’s structure was unconstitutional,” said Jenny Lee, a partner at law firm Arent Fox.

CFPB Sale’s case, the court ruled that “the CFPB is contrary to the Constitution and does not provide a remedy to override the CFPB that the applicant was trying to revoke.”

Likewise, the court in the FHFA decision left it to the discretion of other parties, such as lower courts, other litigants or the administration, to seek a remedy.

“Here, while the conditions are now being prepared for the Biden administration and the lower court in custody, the four corners of the SCOTUS ruling itself does not mean any direct change in the way these agencies operate,” Lee said.

However, there is one big difference between the FHFA case and Salea’s law, said Wood of Covius Compliance.

In the FHFA case, the statute involved, Housing and Economic Recovery Act, states that “courts are not allowed to restrict or influence the exercise of the FHFA’s powers or functions as a conservative,” Wood said in an interview. “So, the court, looking at this, said to the shareholders:“ I’m sorry, but in this situation the charter directly binds our hands. ”

The court still left open the possibility that the shareholder has some kind of legal remedy, he added.

So the case can go back to the judicial system. “It is also possible that depending on what happens in the lower courts, it will go back to the Supreme Court on these narrower issues,” Wood said.

But it seems unlikely that the investors who have sued will be able to get away from any recovery in this round. “Although the plaintiffs’ claim was not dismissed, their position seems unconvincing because it would be difficult to show that the third amendment would be different if the president had the opportunity to remove the FHFA director,” said George of KBW.


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