Industry groups oppose Fannie, Freddie capital boost

by Ryan Smith10 Jun 2016
Major housing and mortgage industry groups sent a letter this week to the regulator for Fannie Mae and Freddie Mac opposing a recent call for the enterprises to build capital in the absence of housing finance legislation, according to a Bloomberg report.

The letter to Federal Housing Finance Agency Director Mel Watt was signed by the Mortgage Bankers Association, the American Bankers Association, the National Association of Realtors, the National Association of Home Builders and the National Housing Conference. It opposed a recent call from affordable housing advocates and some small lenders for Fannie and Freddie to build capital.

Under the terms of the bailout agreement that put Fannie and Freddie into conservatorship, the enterprises send nearly all of their profits to the Treasury and must reduce their capital buffers until they hit zero in 2018. That arrangement has caused some to worry that the companies might need another bailout in the event of even a small loss, Bloomberg reported.

But the industry groups said the current agreement would be adequate for now, and insisted that any comprehensive reform should come through Congress. According to the letter they sent to Watt, the terms of the bailout agreement “do not replace the need for a permanent solution to housing finance reform. However, they do provide an adequate backstop to allow Congress to complete the last piece of unfinished business from the financial crisis. Detours from this long-term goal would be counterproductive.”

Earlier this year, Watt said in a speech that shrinking capital at Fannie and Freddie was a “serious risk” that might escalate if unaddressed.