Comment to the Federal Housing Finance Agency on Enterprise Regulatory Capital Framework
Thank you for the opportunity to comment on the Federal Housing Finance Agency’s (FHFA’s) re-proposed rule on capital requirements for Fannie Mae and Freddie Mac (the governmentsponsored enterprises, or GSEs).
In our view, the proposed rule erroneously treats the GSEs as banks and therefore requires banklike capital. This leads to gratuitously high capital levels that run directly contrary to the GSEs’ charter mission to promote access to mortgage credit to underserved borrowers, to serve a countercyclical role in the mortgage market, and to FHFA’s duty to reasonably support the safety and soundness of the GSEs and U.S. housing finance system.
The proposed rule’s approach would unnecessarily increase costs and reduce mortgage credit availability, with an acute impact on low- to moderate-income families and families of color. It would do this directly, by pricing out of the GSE channel many borrowers with lower credit scores and higher loan-to-value (LTV) ratios, and indirectly, by pricing out higher credit score and lower LTV borrowers that generate much of the current system’s cross subsidy to make its loans more affordable.
The rule would hamstring the GSEs in fulfilling their countercyclical mission in a crisis. It would shrink the conventional market’s footprint, likely shifting significant volume to FHA, and leave more of the mortgage market subject to the swings of portfolio and PLS markets, which tend to dry up quickly in times of stress, including the financial crisis of 2008.
And the rule would not reduce risk to the overall housing finance system, but rather simply redistribute and concentrate it. By removing the GSEs’ incentive to distribute their credit risk, the rule would lead to more risk being held at the GSEs despite their smaller market share.