Fannie Mae Envisions Independence from Government Control
February 12, 2024
In a recent Bloomberg article, Priscilla Almodovar, CEO of Fannie Mae, reflected on the organization’s prospects outside of government conservatorship, which it has been under since the 2008 financial crisis.
Almodovar, who took the helm in December 2022, emphasized that the conservatorship was never intended to be a permanent solution. She highlighted the limitations it imposes on Fannie Mae’s commercial operations, expressing concern over the loss of “commercial muscle” due to the limbo state between government and private sector status.
Why it matters: Fannie Mae and Freddie Mac, the U.S. government sponsored enterprises (GSEs) that are central to providing liquidity for single-family and multifamily housing, were placed into conservatorship in September 2008. Both GSEs have been allowed to retain more earnings to build up capital reserves, with Fannie Mae and Freddie Mac accumulating $73.7 billion and $44.7 billion, respectively, according to Bloomberg.
The Federal Housing Finance Agency (FHFA), which oversees the housing agencies, has not yet outlined a plan for returning the mortgage firms to private ownership but has established prerequisites. At a May 2023 hearing, FHFA Director Sandra Thompson said the agencies must build their capital buffer to a combined $300 billion. Even then, she noted further conversation will be required with Treasury and Congress.
The bottom line: Mark Calabria, the former FHFA director, acknowledged the progress made toward rehabilitating Fannie Mae and Freddie Mac, estimating two to four years of work remains to address outstanding issues. Almodovar and Calabria agree that both companies are in a better position now, with improved capitalization, regulation, and a business model that has shifted from holding mortgages on balance sheet to mitigating interest-rate and duration risk.
The article underscored the ongoing debate and efforts regarding the transition of Fannie Mae and Freddie Mac back to the private sector, marking one of the last significant unresolved matters from the global financial crisis.
NOTE: Mark Calabria will be CREFC’s Keynote speaker at our High Yield, Distressed Assets, & Servicing Conference on March 6 and 7. We hope to see you there.
Contact Raj Aidasani (email@example.com) with any questions.
Managing Director, Research
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