New York | Several weeks ago, we commented on how Federal Housing Finance Agency (FHFA) Director Mark Calabria never really had any intention to release Fannie Mae and Freddie Mac from government control (“The Myth of GSE Release”). Instead, Calabria’s true agenda seems to be to cripple the GSEs and the independent mortgage banks (IMBs) that operate in the $6 trillion conventional market. In Washington, watch what they do, not what they say.
We quoted former Freddie Mac CEO Don Layton, writing for the Harvard Joint Center on Housing, who notes that the tenure of Mark Calabria “seems to me to reflect far too much antipathy to the GSEs and the politics of anti-GSE advocates who have long wanted to dramatically shrink (if not eliminate) the role the two companies play in mortgage markets." Again, we totally agree. But Calabria's antipathy for the GSEs also extends to private mortgage firms.
Last week we saw the latest bizarre development from Director Calabria and the FHFA. Fannie Mae and Freddie Mac announced that, at the direction of FHFA, the two GSEs imposed new minimum liquidity requirements for IMB seller/servicers in the conventional market. Effective March 31, 2021, unused and available portions of committed lines of credit from commercial banks no longer will be considered as a component of IMBs’ liquid assets.
The Fannie Mae announcement is found here and the Freddie Mac announcement can be found here. Keep in mind that these changes were made without warning or notice to the GSEs or the IMBs. It’s not even clear that the staff of FHFA or the GSEs had prior notice of the decisions. Bottom line, the change by FHFA will reduce IMB liquidity and lending volumes nationally.
Our guess as to the motivation behind this action is that FHFA is trying, in Calabria’s simplistic fashion, to be dogmatically consistent with all market participants. Unused bank credit lines don’t fit the “hi