May 20, 2019 / 6:39 PM / 3 months ago

Fannie, Freddie need to raise capital before privatization: FHFA's Calabria

NEW YORK (Reuters) - Fannie Mae and Freddie Mac need to build adequate capital as a critical step toward privatizing them, the head of their regulator said on Monday, more than a decade after the government took control of the U.S. finance agencies during a global credit crisis.

FILE PHOTO: Mark Calabria, Director-Designate, Director of the Federal Housing Finance Agency, testifies during a nomination hearing on Capitol Hill in Washington, U.S., February 14, 2019. Courtesy Joy Holder/U.S. Senate Photographic Studio/Handout via REUTERS/File Photo

The Trump administration is pressing to release the two government-sponsored enterprises (GSEs) from federal control, which went into effect in October 2008 in the wake of heavy losses that Fannie and Freddie suffered on home loans that soured during the subprime mortgages crisis.

“It was insufficient capital that triggered the conservatorship, and it’s going to be sufficient capital that triggers an exit,” said Mark Calabria, director of the Federal Housing Finance Agency.

Calabria was speaking at the Mortgage Bankers Association’s annual National Secondary Market conference.

Proponents of privatization for the two firms say increasing the amount of money they have on hand is critical in case they face another financial crunch like the one over a decade ago.

“As a regulator, my primary concern that the GSEs maintain capital levels commensurate with their risk profiles,” Calabria said, adding they should eventually meet that same capital rules of big banks.

Calabria did not specify the levels of capital Fannie and Freddie should raise.

A privatizing plan including ways for Fannie and Freddie to raise capital is being worked on, Calabria said.

He said a housing finance reform plan would be finalized this fall with the goal for Fannie and Freddie to begin to raise capital in January 2020.

“So the path of out of conservatorships that we will establish for Fannie and Freddie is not going to be calendar dependent. It will be driven, first and foremost, by their ability to raise capital,” he said in a prepared speech to the industry group.

Fannie and Freddie could increase capital by stopping remitting their profits to the government, Calabria said.

Under their conservatorships, the GSEs send their quarterly profits to the U.S. Treasury.

Calabria said he and others are studying other methods for Fannie and Freddie to raise capital “such as a public offering of some kind.”

Reporting by Richard Leong; Editing by Cynthia Osterman

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