Federal Housing Finance Agency Director Sandra Thompson is keeping her perspective on whether Fannie Mae and Freddie Mac should come out of conservatorship and a decision on credit rating models close to the vest.
“Ending conservatories is not a quick action to take,” Thompson said in testimony Wednesday before the House Financial Services Committee. “There are capital goals that need to be met, other policy issues that need to be decided by other stakeholders – the US Treasurysome with the Federal Reserveand others.
“It’s not an easy or immediate process. We’ll do our best to make sure that when they come out, they’ll be in good shape financially and operationally.
Thompson has previously said Congress should consider whether to end the nearly 14-year-old conservatorship. But some argue that the Housing and Economic Recovery Act of 2008 allows the FHFA to operate without Congress and run GSEs under a utility model.
And while it didn’t extend to GSE stewardship, the FHFA’s review of alternative credit score models is now in its seventh year. Lawmakers asked Thompson when they could expect a final decision on whether GSEs will update the credit scoring models they use.
Thompson didn’t budge on that either, though she pointed out how costly it would be to make changes to the credit scoring model used by GSEs.
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“We haven’t made a decision on the credit score model. Most mortgage participants have used the classic FICO model for the past 20 years,” Thompson said. “Updating the credit score model is a decision we take very seriously, as it will have significant operational and cost impacts, even if we move from a credit score [model] to a new credit score [model]so we want to be very thoughtful.
Democratic Rep. David Scott of Georgia asked Thompson what the FHFA was doing to address “inaccurate” and “distorted” ratings of some manufactured homes.
Thompson said the issue of ratings was brought to his attention during a tour of manufactured homes at a recent festival at the National Mall. Thompson said she would work with the GSEs to “see what flexibilities there might be in this particular situation.”
During the nearly five-hour hearing, Thompson also took the opportunity to again ask lawmakers to grant the FHFA the same oversight of corporate third parties that banking regulators have of banking service providers. . That would give it “parity with other financial regulators,” Thompson said.
“We believe that the people and entities that provide services to our regulated entities, if there is an issue that could impact the safety and soundness of Fannie and Freddie, we want to have the power to step in and fix it. ‘examine the problem,’ Thompson said.
The FHFA has repeatedly asked Congress to give it the power to review third-party service providers. Thompson said when she came to FHFA from the Federal Deposit Insurance Corporation, she was “surprised” that FHFA did not have the same authority as the agency under the Bank Service Company Act.
This law subjects providers of banking services to regulation and scrutiny “to the same extent as if such services were provided by the depository institution itself on its own premises”. It also requires banks to promptly notify their regulator of new service agreements.
Among other updates for lawmakers, Thompson said the comprehensive pricing review she promised in October 2021 would be “a business priority for this year.”
“We have asked Fannie Mae and Freddie Mac to undertake a comprehensive pricing review, which would include loan-level pricing adjustments, delivery charges and warranty charges,” Thompson said. “We will review submissions and consider the impact of pricing on all different segments, including communities of color.”