When it comes to the prospect of Fannie Mae and Freddie Mac facing increased competition once they exit federal conservatorship, Hugh Frater had a simple statement.
“Bring it on,” said Frater, Fannie Mae’s CEO.
Frater and his Freddie Mac counterpart, David Brickman, had a moderated discussion during one of Monday’s general sessions at the Mortgage Bankers Association’s Annual Convention and Expo in Austin. The heads of the government-sponsored enterprises (GSEs) touched on several topics, including many involving what the GSEs will look like in post-conservatorship times.
“We know we face a more competitive, dynamic future,” Frater said. “Because of that, what we need to become is the most productive, most efficient [that Fannie and Freddie] have ever been, and that will enable us to better serve our customers and enable our customers to serve theirs.”
Brickman said that Monday’s release of a strategic plan and scorecard for the GSEs’ transition is “the starting gun going off for the prospect of exiting conservatorship [and] for recapitalizing.”
“There are a number of items in the plan that clearly need to occur to make that possible,” Brickman said. “[That includes] establishing a capital rulebook, first and foremost. We look forward to working with the [Federal Housing Finance Agency] regarding seeing the capital plan and working toward capitalizing around that plan.”
Frater agreed, noting that the only way for long-term stabilization of the system is to add an additional layer of capital. He also said that even though it’s clear that Fannie and Freddie need more capital, “these organizations are extraordinary positioned to withstand a downturn,” unlike when the housing bubble burst prior to the Great Recession.
Brickman said that the only challenge he sees to the plan is how to prioritize, given the scope of the endeavor.
“We all are large institutions and frequently … the difficult part is how to get everything done and recognize how to sequence different issues,” he said.
When it comes to the question of how Fannie and Freddie will compete with private companies in a post-conservatorship world, Frater said it’s something that keeps him up at night.
“I think that involves cultural adaptation. … I think the longer we stay in conservatorship, the less able we are to do things that are [more] possible outside of conservatorship — which is to be agile, to be innovative, to bring value to the market, to the home-mortgage ecosystem … and better reach our customers and their customers. It’s just harder to do that if you have a quasi-government mindset.”
A key to that agility, Frater said, will be in the digital mortgage space and in leveraging different technologies to keep up.
“All of our competitors will be technologically enabled, so we need therefore to be technologically agile and technologically literate,” he said.
Brickman said there also is a layer of concern about might happen if the transition process stagnates.
“As we are now looking at the prospect of something changing, there’s excitement in the air,” Brickman said. “I think that’s great. … While I think we will have some challenge in making sure people can adapt [to] having been in transition, I also worry that if it doesn’t come, that’s not just a challenge just in terms of markets and economics and capital, it’s also a little bit of a challenge to culture and institution.
“There’s only so long we can maintain a mindset that’s very private sector while we retain [operations in conservatorship]. I’m worried about that sort of atrophying over time.”
Frater said that the GSEs have “a laser focus on preparing for the end of conservatorship,” a process that’s very much a collaborative effort. Brickman said that it’s “very valuable” that the two CEOs have worked together in the past — they share a mutual background in the multifamily-housing sector — as they traverse the course of recapitalization and release.
“At the same time,” Brickman said, “we go out every day of the week to try to beat the crap out of each other, and I think that’s very helpful for the market.”
Regarding other topics that don’t involve the GSEs’ exit plans, the pair reaffirmed their commitment to affordable housing. Again, their backgrounds come into play, Brickman said, since the GSEs’ multifamily programs are “by definition, affordable.”
Asked about the roadblocks to a “fully digital mortgage experience,” Brickman cited connectivity and standardization, as well as multiple tools, processes and platforms that present challenges. He added that Fannie and Freddie have made significant investments to address these issues. Asked to posit when such a platform would become an industry standard, Brickman replied, “I think we will work through much of that.”
“I think it will be a slog,” he said. “It will take much more investment on our part. … But we’ll get through. It probably takes a little longer than we might expect. But I would say within 10 years.”
