FHFA candidate Thompson defends current modifications and helps reform

Sandra Thompson, Director of the Federal Housing Finance Agency (FHFA) and nominee for US President Joe Biden, listens during a hearing of the Senate Committee on Banking, Housing and Urban Affairs in Washington, DC, on Thursday, January 13, 2022 to. Thompson, the career government official who runs the FHFA on an acting basis, would if confirmed lead Fannie Mae and Freddie Mac's board of trustees permanently. Photographer: Al Drago/Bloomberg

Al Drago/Bloomberg

The Biden administration's nominee to head the Federal Housing Finance Agency differs from her predecessor in several ways, but some of her comments from the Senate, Sandra Thompson, echoed those of former Trump-appointed Director Mark Calabria in part.

When asked during her confirmation hearing whether she would remove from the conservatorship two state-sponsored companies the agency oversees, Thompson said it was up to the legislature.

"We would leave the exit from the GSEs to Congress," the FHFA's current acting director said in comments that resembled — in at least one respect — those made by former director Mark Calabria at his 2019 nomination hearing

"We will work to help you in any way we can to answer your questions, but we think Congress needs to work on that," said Thompson, who would become the first African American woman to lead the agency if confirmed.

To date, multiple legislative and previous government efforts to reform the two GSEs that went into conservatorship during the Great Recession have failed. and Thompson acknowledged that their status as governorates is lasting longer than expected.

"No one ever expected companies or financial institutions to remain under supervision for 13 years," she said.

Thompson said she is willing to help position the GSEs for exit as FHFA director, but added that Congress must take action against changes to their structures, which were initially mandated by legislation.

“When the corporations leave the conservatorship, will the corporations be private, will they be public? What shape will they be in? There are just a lot of issues that would need to be considered for Congress to weigh; but certainly the FHFA can prepare companies for that,” said Thompson.

Thompson also raised questions about the adequacy of Fannie Mae and Freddie Mac's capital and whether recent changes to related proposals could weaken it.

She defended those moves and other recent FHFA policies to her chief critic during the hearing, Sen. Pat Toomey, R.-Pa., who serves as the top Republican on the Senate Banking Committee. He questioned the partial reversal of a policy introduced under the previous government that would have reduced the GSEs' footprint in the housing market, saying it could expose Fannie and Freddie to new risks. He also criticized recently proposed targets related to racial justice at Fannie and Freddie.

"I'm concerned that the administration is trying to use the FHFA and GSEs to take more risks for taxpayers and extend affirmative action to housing," Toomey said.

Thompson said de-risking and adequate capital would be top priorities if confirmed.

"We think the security of the solidity of the case GSEs, particularly Fannie Mae and Fred Mac – they've just been allowed to raise capital and retain profits – is very important," Thompson said.

A move aimed at encouraging a broader use of credit risk transfers, which allow retail investors to absorb some of GSEs' losses, will help to that end, Thompson said.

Thompson also reiterated the FHFA's commitment to its fair housing plan when other senators such as Senate Banking Committee Chair Sherrod Brown, D-Ohio, unlike Toomey, questioned whether it went far enough to address the inequalities between address the high homeownership rates for white members of their constituencies and relatively lower rates for black and Hispanic residents in the states they represent, especially given that other agencies such as the Federal Housing Administration have been able to do more to this end .

"What should the GSEs do to ensure they serve borrowers of color?" asked Brown Thompson.

"We believe these equity housing equity plans will go a long way in helping bring mortgage access to minority homeowners in underserved communities across the country," Thompson said.

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