FHFA Strategy Focuses on Post-Conservatorship Years

The Federal Housing Finance Agency (FHFA) has released an updated strategic plan that envisioned a path for ending the conservatorships of Fannie Mae and Freddie Mac that have been in place since September 2008.

According to a statement issued by the agency, “FHFA Strategic Plan: Fiscal Years 2021-2024” formalizes the direction of the FHFA and its regulated entities with an updated mission that includes three new strategic goals:

• Ensuring safe and sound regulated entities through world-class supervision;
• Fostering competitive, liquid, efficient, and resilient (CLEAR) national housing finance markets; and
• Positioning the agency as a model of operational excellence by strengthening its workforce and infrastructure.

“FHFA must take steps to prepare for its post-conservatorship role as a world-class regulator,” said FHFA Director Mark Calabria. “This new Strategic Plan outlines the critical milestones that will guide FHFA’s efforts to ensure that its supervision and regulation of the Enterprises is strong and well-executed once outside the framework of conservatorship.”

Although the plan did not offer a specific timeline for achieving a post-conservatorship environment, Calabria added that the FHFA has already begun to take actions that align with these goals, including the creation of the Office of Equal Opportunity and Fairness and the Division of Research and Statistics, which both occurred last January.

The strategic plan acknowledged there could be obstacles to prevent it from being implemented, including the possibility of the government-sponsored enterprises becoming unable to provide liquidity to the mortgage market during a period of economic fraying.

“Financial stress that adversely affects the safety and soundness of the regulated entities can come at any time,” the strategic plan warned. “A severe economic downturn could trigger a decline in nationwide or regional house prices, causing an increase in mortgage defaults. Disruptions in funding markets could limit access to and increase the cost of short-term borrowing. Defaults by one or more significant counterparties could expose the regulated entities to loss.”

The strategic plan also predicted difficulties from “any new housing finance legislation enacted into law [that] could potentially affect FHFA’s ability to implement this Strategic

Plan.” The plan recommended that Congress “give FHFA the same flexibility as the federal banking regulators by amending or removing the statutory capital definitions” while allowing it to continue partnering with other federal agencies “to ensure a fair playing field and mitigate opportunities for regulatory arbitrage.”

“The finalized strategic plan will help cement the agency as a world-class financial regulator by ensuring that we fulfill our statutory mission and continue working to end the conservatorships of the enterprises responsibly,” Calabria said.