Mo' Don: "The Biden Administration: Will There Be More Than Benign Neglect?
It is now one and a half years into the Biden administration. So far, there has been no evident focus within Treasury or the White House on GSE reform or exiting conservatorship; instead, the very visible focus of the administration is to implement programs to make housing more affordable and eliminate racial disparities. However, with Republican-appointed Calabria continuing his five-year term (ending April 2024) as Director of the FHFA, it was clear that he, as conservator, would not be particularly aligned with these priorities and thus take little, if any, actions to support them in his directives to the GSEs. It was therefore fortuitous for the Biden administration that the Supreme Court ruled in June 2021 that the FHFA would no longer be an independent agency (for technical reasons related to its structure), allowing the President to fire Calabria and replace him with someone more supportive of its agenda. In the meantime, he appointed as the acting FHFA Director Sandra Thompson, its top civil servant; President Biden later nominated her as the permanent Director, and she has since been confirmed.
So far, the directorship of Thompson is known, in my view, for two core policy directions. First, pursuing the mission of the GSEs-including various Biden administration initiatives–but absolutely consistent with safety and soundness,34in which she has a strong background having previously worked at the FDIC for over two decades. And second, she has begun to publicly talk about taking actions to prepare the GSEs for eventual exit from conservatorship, even while the administration is not currently prioritizing such an exit.35
Recapping Part 1
Upon the two GSEs being placed into conservatorship in 2008, few expected that Freddie Mac and Fannie Mae would be able to exit conservatorship quickly and go back to the status quo ante. Yet there was also no expectation that government control would be so enduring, with its 14th anniversary in just two months and no end in sight. Instead, the length of government control was repeatedly extended as a byproduct of specific decisions made by all three presidential administrations involved. The one major exception was the Trump administration allowing the GSEs to retain their earnings in order to build capital, one of the major steps needed to put them onto the off-ramp to exit conservatorship. The question at this time is what to expect going forward: (1) the government continuing its current level of control for the foreseeable future, despite earnings being retained; or (2) getting the two GSEs fully onto the path to being reprivatized again, albeit while retaining the reforms made to them during conservatorship. That will be the subject of Part 2. "
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