It’s been a busy week for the Federal Housing Finance Agency (FHFA). First up, during the American Credit Union Mortgage Association’s Annual Conference, Director Mark Calabria shared his concerns about volume-based pricing discounts on Guarantee Fees (G-Fees). Early in the conservatorship of the Fannie Mae and Freddie Mac, FHFA restricted competition on G-Fees. In its Housing Reform Plan, the Department of the Treasury urged Congress to ensure that doesn’t happen again, but in the meantime, FHFA issued a confidential administrative directive to both companies enshrining current policy in writing, according to the National Housing Conference.
FHFA sent a letter to the 11 Federal Home Loan Banks (FHLBanks) instructing them that, as of December 31, 2019, they should stop purchasing investments in assets tied to London Interbank Offered Rate (LIBOR) with a contractual maturity beyond December 31, 2021. As of March 31, 2020, the Federal Home Loan Banks should no longer enter into all other LIBOR-based transactions involving advances, debt, derivatives or other products with maturities beyond December 31, 2021, with only very limited exceptions granted by FHFA. This follows 2012 criminal settlements for fraud and collusion by banks connected to the rate submissions and kicks off an industry wide movement to find a “more robust reference rate” in the words of Director Mark Calabria.
FHFA announced modified Preferred Stock Purchase agreements with Fannie Mae and Freddie Mac that allow the GSEs to retain capitals of up to $25 billion and $20 billion, respectively. The move ends the capital sweep on earnings above $3 billion that was put into place in 2008 when the GSEs entered conservatorship. Since 2008, Freddie Mac has repaid a total of $119.7 billion to the Treasury, exceeding its original draw during the financial crisis by about $48.1 billion. Fannie Mae has repaid a total of $181.4 billion, compared to $119.8 billion that it drew. Stock prices for Fannie and Freddie have both soared since the announcement and are expected to continue increasing as this marks the beginning of the end of conservatorship.
Finally, FHFA announced an agreement with Simone Grimes who accused former director Melvin Watt of sexual harassment. The terms of the settlement were not made public but Grimes, who sued the agency for $1 million last year, said she was happy with the resolution of her claims against Watt. The agreement comes a year to the day after Grimes testified before Congress.