Watt: FHFA Will Not Build Short-Term Capital Buffer for GSEs

In a letter to the National Association of Realtors yesterday, FHFA Director Mel Watt signaled that the agency would not move to establish a short-term capital buffer for Fannie Mae and Freddie Mac when the current capital buffer put in place under the terms of the Senior Preferred Stock Purchase Agreements with the Treasury Department expires on Jan. 1, 2018.

Watt’s letter came in response to calls from NAR to establish a short-term “mortgage market liquidity fund,” where the GSEs could deposit a portion of their profits to cover future losses and reduce risk to taxpayers. Watt responded that while FHFA remains concerned about the expiration of the capital buffer, any changes to housing reform should come through Congress.

“I am sensitive to the prospect that whatever steps FHFA could take might be misperceived as either an effort to promote recapitalization and release of the Enterprises or as interference with Congress’ important work to advance housing finance reform,” Watt wrote, calling on lawmakers to continue the work it began on reform before the August recess.

ABA has long held that reform of the housing finance system must be directed by Congress. The association previously outlined specific recommendations for reforming Fannie and Freddie, with the goal of reducing the direct role of the federal government in mortgage finance, restoring private participation in housing markets and ensuring equitable access. For more information, contact ABA’s Joe Pigg.

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