Ex-FHFA Chief Calabria warns of Fannie, Freddie risk

Mark Calabria, who oversaw government-controlled mortgage giants Fannie Mae and Freddie Mac under the Trump administration, is sounding alarm bells about the possibility of another bailout for the government-controlled mortgage giants if the housing market backslides, he said on IntraFi Network’s Banking with Interest podcast published Tuesday.

Calabria was appointed by Trump as director of the Federal Housing Finance Agency in April 2019 but was fired by the Biden administration in 2021 well before his term was to expire. A 2020 Supreme Court ruling gave the president the authority to remove the FHFA director.

In the interview published Tuesday, Calabria bemoaned Congress’ inability to address the nearly 14-year-old conservatorship of Fannie and Freddie and the risk that has built up within the system since. 

“If that window hasn’t closed already, it’s quickly closing to where an insolvency of Fannie and Freddie may well be an inevitability at this point,” Calabria said.

Under Calabria, the FHFA pursued a plan under current law to devote Fannie’s and Freddie’s profits to rebuilding capital with an eye toward exiting conservatorship. The plan was criticized by housing advocates who felt the resources should be used to boost home ownership. And Calabria’s replacement Sandra Thompson has reversed his moves. The FHFA, Fannie Mae and Freddie Mac did not immediately respond to requests to comment on Calabria’s remarks. 

Calabria described an episode during his tenure when Freddie Mac executives told him that they had previously been given directives to take more risks they felt went too far. 

“The companies told me they were told to take risks that they thought were excessive and poorly thought out, and that they were directed to make loans that they would not have otherwise by the conservator,” Calabria said. 

The total delinquency rate on Fannie and Freddie loans was 2.13% in February, according to the FHFA’s latest monthly report, up slightly from the month before but nearly half the 4% rate reported during the same month one year earlier.

But Calabria said under new leadership, Fannie and Freddie have eased requirements on the home loans they will buy from banks and other lenders, leading to the potential for more problems ahead if hot home prices reverse course.

Calabria also pointed out that 11% of all loans backed by the Federal Housing Administration are in some stage of delinquency, at a time when the economy is in danger of a recession because of inflation and the Federal Reserve’s interest rate hikes meant to combat the rising prices.

“This is a political nightmare waiting to be written that, in my opinion, really threatens to undermine (and) further erode public trust in our institutions,” Calabria said. “Why do we want to gamble with that?”

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