GSE Main Street Coalition Letter Asks FHFA Director Watt to Use HERA authority to: (1) Suspend the quarterly Profit Sweep, and (2) Direct Fannie and Freddie to develop capital restoration plans
Contact: Scott Olson For Immediate Release
571-527-2601 June 17, 2018
The Community Home Lenders Association (CHLA) today joined other small lender and civil rights groups in a joint letter to FHFA Director Mel Watt applauding him for his recent action to have the FHFA promulgate a new risk-based capital and minimum leverage rule – and also asked FHFA to take the additional steps of suspending the quarterly profit sweep to increase the GSEs’ capital buffer and using authority under HERA to direct Fannie and Freddie to develop capital restoration plans.
The other associations that joined with CHLA on the letter are: Independent Community Bankers of America; Leadership Conference on Civil and Human Rights; Community Mortgage Lenders of America; NAACP, Leading Builders of America; National Community Reinvestment Coalition; National Urban League; and Prosperity Now.
The call to have FHFA direct Fannie and Freddie to develop a capital restoration plan would be an important step in helping to resolve the GSEs’ long-time conservatorship. This is an approach CHLA first called for three years ago in a letter to FHFA Director Watt.
The joint letter to FHFA Director Watt says:
“Under your leadership, Fannie Mae and Freddie Mac have made extraordinary strides toward achieving the safety and soundness requirements under . . . HERA. We applaud your most recent development towards this end, the promulgation of a new risk-based capital and minimum-leverage capital rule.
We are writing to ask that you take two additional but vitally important steps to continue the progress to date: (1) direct Fannie and Freddie to develop capital restoration plans for the GSEs, consistent with the capital and leverage standards being developed, and (2) suspend the net worth sweep in order to increase the GSEs’ capital buffer.
The letter goes on to point out that while HERA gives FHFA authority to require the GSEs to develop capital restoration plans, to rebuild their capital, and ultimately to end the conservatorship. The letter calls on FHFA to do the first two of these – but not the latter, ending the conservatorship. It notes this approach would not interfere in any way with the prerogatives of Congress to act on comprehensive GSE reform, but would in fact help Congress by showing how the GSEs could recapitalize.
The letter notes that:
“We believe that ten years in conservatorship are quite enough. . . . To date, little evidence exists of a consensus in the House or Senate for a complex overhaul, which means continued stagnation on resolving the conservatorship unless FHFA continues to take constructive steps to further reform the GSEs.”