FHFA: Statement of Director Mark Calabria

FHFA: Statement of Director Mark Calabria

Investor Update
December 3, 2020

Source: FHFA

Thank you, Mr. Chairman. I want to thank the staff of each FSOC member agency for the hard work that went into producing this report. The FSOC annual report continues to be a crucial component of FSOC’s monitoring of the financial system. This year’s report provides an excellent review of the COVID-19 pandemic’s effects on the broader financial system.

As the annual report describes, strong labor markets and house price appreciation created a solid foundation under America’s mortgage finance system at the start of 2020. Then in response to COVID-19, financial markets endured a severe dislocation in March.

FHFA acted swiftly and prudently to respond to COVID-19. Thanks in part to these policies, the housing market has largely been a bright spot in the pandemic’s economic data. And we continue to update our policies as the challenges facing renters, borrowers, and market participants evolve.

One of our first priorities was helping Americans stay safe in their homes. We suspended the foreclosure process on all Enterprise-backed mortgages, including 200,000 already in foreclosure pre-COVID. We made forbearance widely available, then ensured borrowers would not face payment shock when they returned to paying down their mortgage. We pioneered nationwide multifamily forbearance programs that prohibited participating landlords from evicting tenants for the nonpayment of rent.

To ensure the safety of market participants, FHFA authorized several loan-closing, employment-verification, and appraisal flexibilities. And in April, FHFA recognized that nonbank servicers needed clarity to serve the market through the crisis. In response, we instituted a four-month limit on servicers’ obligations to advance principal and interest payments on loans in forbearance. We also strongly encouraged servicers to raise private liquidity. As a result, servicers are now largely in a stronger financial position than they were pre-COVID.

This year’s national emergency has underscored the importance of having a well-capitalized housing finance system. The Federal Home Loan Bank System’s sound condition allowed the Banks to increase their advance business by a historic 30 percent at peak this spring. And the Enterprises were able to initially finance their COVID relief policies from their balance sheets. This was only possible because FHFA and Treasury had agreed the previous September to allow the Enterprises to begin rebuilding their capital base with retained earnings.

Two weeks ago, FHFA took a significant step toward increasing the safety and soundness of our housing finance system by finalizing its regulatory capital framework for Fannie Mae and Freddie Mac. FHFA is confident that the final rule puts the Enterprises on a path toward a sound capital footing. Increased capital means that they can serve all Americans, especially low- and moderate-income families, throughout the economic cycle.

I also appreciate the Annual Report’s discussion of the statement released at our last meeting regarding FSOC’s activities-based review of secondary mortgage market activities. That review was a necessary and important step in reforming our housing finance system. FHFA considered and incorporated feedback from FSOC’s review in finalizing the capital rule.

I share the Council’s view that risk-based capital and leverage ratio requirements materially less than those in the rule would likely not adequately mitigate the potential stability risk posed by the Enterprises. I also commend the Council for its commitment to monitor the activities of the Enterprises and FHFA’s implementation of the regulatory framework to ensure potential risks to financial stability are adequately addressed.​