FHFA Director Watt, Treasury Exploring Options for GSE Capital Buffer

Declining capital buffers for Fannie Mae and Freddie Mac could leave the government-sponsored enterprises with little ability to absorb losses if allowed to zero out at the end of the year, FHFA Director Mel Watt opined in a letter to ABA and other trade associations last week. Watt’s letter came in response to comments from ABA and other housing and finance trade associations last month, urging FHFA not to give in to advocates for rebuilding Fannie and Freddie’s capital cushions without structural reform.

While Watt reiterated that “it is the role of Congress to determine the future of housing finance reform and any steps FHFA might take should not be misperceived as either an effort to promote recapitalization and release of the enterprises from conservatorship, or as interference with the work of Congress,” he noted that FHFA is working with the Treasury Department to explore “a number of options” for addressing challenges that could arise when the capital buffer drops to zero on Jan. 1, 2018.

ABA has long called for Congress to seek a long-term solution to the nearly-decade-long conservatorships, rather than taking short-term actions that could hinder GSE reforms.