Mark Calabria, VP Mike Pence’s Chief Economist (formerly at the Cato Institute) is rumored to be the nominee of President Trump to replace Mel Watt as chief Fannie Mae and Freddie Mac’s regulator (as well as other GSEs).
Calabria has long been an advocate of downsizing government’s role in the housing and mortgage market and even shutting down Fannie and Freddie.
What are the options that Calabria (and Congress) face?
- Status qou – leave Fannie and Freddie in conservatorship
- Remove FF from conservatorship and …
Free Fannie and Freddie? Not without a boat load of capital. Remember, FF are not depository institutions (unless Congress does what it did with investment banks during the financial crisis and allow them to be declared depository institions). A change to their charters and the acquisition of a current depository institution like United Bank would do the trick. FF would then be subject to bank captial requirement (which they currently are not).
Shut FF down. While appealing to free marketeers, various stakeholders like the affordable housing lobby will protest.
Of course, the old shut down FF and create a new government insurance company (aside from the fact that FHA, Fannie and Freddie are mono-line insurance ompanies already) is always on the table. This was the Parrot and Zandi plan.
According to Parrot and Zandi, “With a new director at the FHFA next year, we are likely to see a meaningful shift in the role of Fannie Mae and Freddie Mac. This likely means a reduction of both the GSEs’ footprint and the cross-subsidy they provide, and it may also mean an attempt to get the GSEs out from under the government’s wing altogether. If
it is any of these, it will mean higher mortgage rates, less access to credit, and disruption to the housing and mortgage markets and broader economy.”
I once estimated that it would increase mortgage rates by 30 basis points only. Heck, The Federal Reserve can achieve that at their next meeting!
I am guessing that Calabria will take it slow as to not scare markets.