Treasury, FHFA suspend Trump-era restrictions on Fannie and Freddie

WASHINGTON— The Treasury Department and Federal Housing Finance Agency have agreed to suspend certain unpopular changes former Trump officials made in January to the government’s oversight of Fannie Mae and Freddie Mac while the Biden administration reviews the revisions.

Those changes agreed to in the waning days of the Trump administration and promulgated by former Treasury Secretary Steven Mnuchin and former FHFA Director Mark Calabria allowed the government-sponsored enterprises to hold significantly more capital, but also baked in several restrictions to the GSEs’ activity that drew ire from lenders and community groups alike.

“This suspension will provide FHFA time to review the extent to which these requirements are redundant or inconsistent with existing FHFA standards, policies and directives that mandate sustainable lending standards,” said acting FHFA director Sandra Thompson in a statement.

FHFA and Treasury are specifically suspending the restrictions in the amendments on “high-risk” loans, multifamily lending, use of the cash window and the purchase of second homes and investment properties. FHFA said it would review the requirements and consult with Treasury “on any recommended revisions.”

The cap on the amount of “high-risk” loans that Fannie Mae and Freddie Mac can purchase drew particular ire from stakeholders after the amendments to the PSPAs were unveiled. The new policy defined such mortgages based on loan-to value and debt-to-income ratios, as well as a borrower’s credit score. But many in the industry and elsewhere argued the changes would disproportionately hurt people of color and make it harder to access loans.

Many also took issue with restrictions in the new agreements that limit the size of transactions completed through the GSEs’ cash window. Smaller lenders can use the window to gain liquidity through higher-volume sales.

Under the January agreement, Fannie and Freddie were permitted retain all of their earnings until they meet the requirements laid out in the FHFA’s new capital framework, which was finalized in November. It requires Fannie and Freddie ultimately to hold roughly $275 billion after they have exited conservatorship. The Biden administration said in a release Tuesday that the suspension of the amendments “do not affect the enterprises’ ability to build or retain capital.”

However, FHFA added in a statement that the agency is reviewing the November capital framework “and expects to announce further action in the near future.”

In a letter to Thompson outlining the suspension, Treasury Secretary Janet Yellen said that the suspension of the requirements would expire in one year and six months after Treasury notifies the GSEs.

Senate Banking Committee Chair Sherrod Brown applauded the decision to suspend the requirements, adding that the Trump administration had “rushed through haphazard changes impacting homeowners, renters and the entire housing system.”

“I applaud Acting Director Thompson and Secretary Yellen’s decision to pause and review these changes so we do not unintentionally restrict access to safe, affordable housing for homeowners and renters,” he said in a statement.

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