The National Association of Federally Insured Credit Unions (NAFCU) and the Independent Community Bankers of America (ICBA) are urging the Federal Housing Finance Agency (FHFA) to allow government-sponsored enterprises (GSEs) – Fannie Mae and Freddie Mac – to maintain capital buffers.
“Allowing the GSEs to rebuild their capital buffers to avoid another draw of taxpayer support would maintain investor confidence, which is essential to the safety and soundness of the secondary market, and prevent any further market disruptions,” NAFCU President and CEO Dan Berger and ICBA President and CEO Camden Fine wrote in a joint letter to FHFA Director Mel Watt. “This would ensure the GSEs can continue to provide liquidity to credit unions, community banks, and other lenders to support a vibrant housing finance system.”
The GSEs were placed into conservatorship following the 2008 financial crisis. As part of an agreement between the Treasury Department and the FHFA, the GSEs are required to send all of their income to the Treasury. The GSEs’ capital buffers will be cut to zero as of Jan. 1. Meaning, if there are any losses experienced at either Fannie Mae or Freddie Mac, the taxpayers – through the Treasury Department — will have to make up the difference.
Watt recently testified before the House Financial Services Committee, stating that it would be “irresponsible” for the GSEs to not be allowed to rebuild their buffers. The FHFA has committed itself to internal reforms to support the GSEs, but allowing the GSEs to begin rebuilding their capital buffers would be a positive first step toward larger housing finance reform.
Berger and Fine commended Watt for his statement and testimony.
“It is essential that the GSEs maintain a modest capital buffer – perhaps only enough to cover losses in a single quarter – so that they are not forced to draw on the [Preferred Stock Purchase Agreements] commitments at the expense of taxpayers,” Berger and Fine continued. “Such an occurrence would not only erode investor confidence but would also taint the public’s perception of the housing finance system and the secondary market, putting the future of the housing finance system at risk. This self-inflicted outcome must be avoided.”