Calabria: we need a new set of amendments to the PSPA

Federal Housing Finance Agency Director Mark Calabria said the controversial changes made to Fannie Mae and Freddie MacThe end-January preferred stock purchase agreements should be just the start.

“I said in January, when the FESP was signed, there must be another round of amendments. January is really a bridge,” he said. Wells Fargoof Kristy Fercho, president-elect of the Mortgage Bankers Association, during the spring conference of the professional group. “We knew when signing the January memo that Fannie would hit the retained earnings caps and the sweep would fall into place. And so it was absolutely essential that we end this sweep so that we could continue to build capital. Because again, just like at Wells or any other financial institution, with Fannie and Freddie, capital is really the binding constraint on the risk, the footprint, and the business they can take.

He added: “So if we weren’t able to keep this capital, unfortunately there would be a further decrease. So we’re building capital that’s the important part we absolutely need another round of FESP to deal with the capital stack because I’m in a situation where we’re still keeping earnings but being given the structure of balance sheets as they are today, it will be very difficult if not impossible to raise external capital.

Calabria’s statement calling for another round of amendments comes after many stakeholders in the mortgage finance industry expressed concern over the first round of amendments, which were put in place by the FHFA and Treasury Department. The MBA wrote in a letter in March that several of the PSPA’s revised changes could cause “unnecessary disruption to the housing finance system.”

The thorniest issue at stake is an Investment Property Amendment, an amendment to the PSPA that limits GSEs to buying single-family loans secured by investment properties or second homes. The amendment caps acquisitions of investment properties or second homes at 7% of total single-family GSE acquisitions. The MBA is concerned that this limit could be a problem for lenders given the higher activity of these loans since the start of 2021.

“It is not clear that private market players currently have the capacity or the resources to absorb the entire gap between business limits and the volume needed to meet underlying demand,” says the letter from the MBA.


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Calabria said on Tuesday the regulator was looking closely at PSPA agreements.

“So for us to really be able to bring the kind of capital that we needed to Fannie and Freddie for them to be able to support the mortgage market, we have to restructure the balance sheet, and that has to be another round of PSPAs. and of course all things in the PSPA are on the table,” he said. “I think it’s also worth remembering that the PSPAs themselves aren’t meant to be permanent, they’re temporary bridges for Fannie and Freddie to be fully funded.”

Fercho, head of home loans at Wells Fargo, asked Calabria about the hard 7% cap and what stakeholders can do now before further amendments are put in place.

“I obviously wish we were in a better capital position and had a stronger Fannie and Freddie that could support more of the market, and that’s our goal,” Calabria replied. “The reality is there will be short-term pinches, if you will, in the market as we try to build a stronger Fannie and Freddie that can support the market. I want to clarify because I think there are often misperceptions, and saying that PSPAs are lines of credit, Fannie and Freddie cannot legally knowingly take risks against PSPAs. It would be like Wells saying, “Well, we have deposit insurance, so whatever.”

During the 30-minute Q&A session with Fercho, Calabria also touched on the assessment and standard loan flexibilities extended to GSEs as part of the COVID-19 response. Calabria said he expects that by midsummer, the FHFA will end flexibilities on collateral assessments unless circumstances force another extension. The agency will learn from the RFI process and implement some of the changes on a permanent basis, he said.

Some other flexibilities, such as powers of attorney, verification requirements and condo project reviews, will end “this summer without an extension.”

Calabria also expressed little concern over forbearances for borrowers Fannie and Freddie. Those abstentions peaked at 2.1 million in mid-May 2020, and he expects them to drop to around 300,000 by September 2021. “A small number will go for seizure,” he said. declared.

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