ABA: GSE Capital Re-Proposal Raises New Concerns

While noting that the Federal Housing Finance Agency’s re-proposed regulatory capital framework for Fannie Mae and Freddie Mac addresses concerns raised by the American Bankers Association about the original 2018 proposal, the association today said the May re-proposal “raises concerns of its own, particularly with regard to the implications for the primary market and our members’ continued ability to sell loans to the GSEs in the revised GSE marketplace implied by the re-proposal.”

Specifically, ABA said, FHFA should provide more clarity about the role it expects the GSEs to play in housing market finance after they leave federal conservatorship. For example, the proposal “strongly implies a changed role for the GSEs in some segments of the market—perhaps a lesser role in first-time home loan purchases and in refinance loans.”

ABA also called on FHFA to provide more data to explain its choices in setting particular standards. “The mortgage markets have benefited from the stability that conservatorship provided over the last dozen years,” ABA said. “To ensure that stability long term, it is essential that FHFA ground the capital standards in well-delineated and well-understood data and rationales for the policies adopted.”

The pending proposal would require Fannie and Freddie to hold approximately $244 billion in combined capital, far higher than the capital levels they currently hold under the terms of conservatorship. It would also add a significant number of capital It would also add a significant number of capital buffers that are similar in many ways to bank capital regulation.