Wednesday proved to be a significant day for the GSEs. Even as the topic of housing finance reform saw discussion in Congress, President Donald J. Trump signed a memorandum tasking the Treasury Department and Department of Housing and Urban Development (HUD) with preparing a reform plan for Fannie Mae and Freddie Mac. The White House memo directed that this plan be delivered "as soon as possible."
The President's Plan
The President specifically called for a "comprehensive" plan for removing Fannie and Freddie from the government conservatorship under which they have been operating since September 2008, during the housing crisis.
The memo states that "in the decade since the financial crisis, there has been no comprehensive reform of the housing finance system despite the need for it, leaving taxpayers exposed to future bailouts." The memo went on to claim that "the Department of Housing and Urban Development’s (HUD) housing programs are exposed to high levels of risk and rely on outdated business processes and systems."
As such, the Presidential memo calls on federal agencies to:
- End the conservatorship of Fannie Mae and Freddie Mac and improve regulatory oversight over them.
- Promote competition in the housing finance market and create a system that encourages sustainable homeownership and protects taxpayers against bailouts.
The memo also notes that the administration wants to work with Congress in order to bring about a comprehensive reform plan, adding that "sustainable homeownership is the benchmark of success for comprehensive reforms to government housing programs."
“I look forward to working with FHFA, HUD, Congress, and other stakeholders to address the need for housing finance reform as laid out by President Trump’s Presidential Memorandum,” said U.S. Secretary of the Treasury Steven T. Mnuchin in a statement. “We support a system that provides for access to lending for hardworking Americans, while also protecting taxpayers from risk. An effective and efficient federal housing finance system will also meaningfully contribute to economic growth.”
"A sustainable housing finance system is critical to providing liquidity and security to the housing market and protecting American taxpayers," said Ed Delgado, President & CEO, Five Star Global. "I look forward to the mortgage industry participating with federal agencies and Congress toward common-sense process reforms that promote responsible homeownership and better safeguard against future economic downturns."
National Association of Realtors (NAR) President John Smaby said in a statement, “While NAR believes the GSEs must be transitioned out of conservatorship, this must be done in a responsible manner that will protect taxpayers and retain the enterprises’ public mission, and these actions must be driven by Congress. This is the only way to secure an explicit government guarantee, a public mission and the 30-year fixed rate mortgage, critical components of a robust U.S. housing market. That point will remain NAR’s primary focus as we continue GSE reform conversations with the Senate, House, and the administration.”
You can read the full memo here. To read more about this week's Senate Banking Committee hearings on housing finance reform, click here and here.
Fannie Mae's New CEO
Fannie Mae today announced that it has appointed Hugh R. Frater as CEO effective March 26. As CEO, Frater will set the overall enterprise vision and strategic direction of the company. In addition to his role as CEO, Frater remains on the Board of Directors. Frater previously served as Interim CEO.
“Following a six month nationwide search of qualified candidates, I am pleased to announce Hugh R. Frater as Fannie Mae CEO. Hugh’s deep understanding of the housing and the financial services industries, broad experience, and strong leadership skills make him an ideal choice to lead Fannie Mae,” said Jonathan Plutzik, Chair of Fannie Mae’s Board of Directors. “Hugh’s contributions as Interim CEO over the last several months demonstrate his commitment to strengthening the company and delivering value to our customers and partners. This appointment also provides continuity in Fannie Mae’s leadership team as we fulfill our mission to provide liquidity and support to the mortgage market.”
“I am honored with this opportunity to lead Fannie Mae and to play a part in the company’s important contributions to the housing finance system,” Frater said. “The Fannie Mae of today is customer focused, innovative, and committed to leading a housing finance system that is safe, sound, and sustainable for taxpayers and creditworthy borrowers of all income levels. I look forward to continuing to work with this outstanding leadership team to deliver on Fannie Mae’s strategic priorities and transform the mortgage experience for our customers and partners.”
Rocky Stubbs, SVP, Direct Lending for Flagstar Bank, told DS News, “Hugh Frater’s announcement is being warmly received by the industry. His reputation is outstanding and there is a high degree of confidence in his capabilities. Fannie Mae was featured in John Collin’s classic Good to Great. One of the key findings is that Level 5 leaders usually come from within the organization. I’m just thrilled that after diligently scouring the market, their search led them right down the hall.”
Not all industry experts are without reservation, however. “I always get nervous when the CEO of a government agency such as Fannie Mae pledges to ‘transform the mortgage experience,” said Edward Pinto, Co-Director, American Enterprise Institute Center on Housing Markets and Finance. “In a 1994 press release, James Johnson, Fannie’s CEO, made a similar pledge. The transformation wrought by the 1994 pledge nearly cratered the world’s economy.”
Frater served as Fannie Mae’s Interim CEO since October 16, 2018, and on Fannie Mae’s Board since 2016. He has held a number of executive and management roles throughout his career. Frater currently serves as Non-Executive Chairman of the Board of VEREIT, Inc. He previously led Berkadia Commercial Mortgage LLC, a national commercial real estate company providing comprehensive capital solutions and investment sales advisory and research services for multifamily and commercial properties.
He served as Chairman of Berkadia from April 2014 to December 2015 and he served as CEO of Berkadia from 2010 to April 2014. Earlier in his career, Frater was an EVP at PNC Financial Services, where he led the real estate division, and was a Founding Partner and Managing Director of BlackRock, Inc.
This news follows the announcement of similar impending changes at Freddie Mac. Earlier this month, Freddie Mac announced that Donald H. Layton will retire as CEO and that the Board of Directors has appointed David M. Brickman to succeed him effective Monday, July 1. Brickman will become a member of the Freddie Mac Board of Directors at that time. You can read more about that story here.