FHFA proposes new regulatory capital framework for GSEs

Today, the Federal Housing Finance Agency (FHFA) published a proposed rulemaking that creates a new regulatory capital framework for Fannie Mae and Freddie Mac, known together as the government-sponsored enterprises (GSEs).

Jesse Van Tol, CEO of the National Community Reinvestment Coalition, made the following statement:

We must have a better and more complete picture of how the proposed capital requirements will affect the GSEs business operations and whether they will make it more difficult for Fannie and Freddie to offer affordable products and pricing, to do the type of outreach and grantmaking that bring homeownership within reach of underserved borrowers and communities.

The FHFA’s proposed capital requirements for Fannie Mae and Freddie Mac will have sweeping impacts on mortgage rates and fees and access to credit across the entire conventional mortgage market, and particularly for low- and moderate-income (LMI) families aspiring to homeownership. This proposal comes at a time when the conventional mortgage market is still in flux from COVID-19, credit standards are rising for first-time and LMI borrowers and other federal changes are underway around mortgage rules, such as the CFPB’s temporary qualified mortgage (“QM”) rules (the so-called “GSE” patch). These proposals are complex and interconnected and the nation’s regulators have a responsibility to provide a more complete and transparent picture of the impact of these consequential rulemakings for a range of LMI families across the credit spectrum – both on mortgage pricing and access to the market and homeownership. 

“A great many Americans are able to buy a home because Fannie and Freddie stand behind it and because, like other insurance, they pool a lot of credit risk in ways that allow them to make mortgage credit more affordable for everyone. Consistent with their public mission, the GSEs have affordable housing goals and related obligations that ensure the market serves the underserved.  

“By imposing a bank-like capital standard on Fannie and Freddie, this proposal could enable hedge funds and other private financiers – who have no obligation to ensure an equitable mortgage market – to capture a greater share of the housing finance system. It could give them an edge when competing with a government-backed system that is foundational to our economy and to the financial well-being of millions of Americans. Private label securitizations, for example, drove a race to the bottom and some of the most irresponsible behavior in the lead-up to the 2008 financial crisis.  

“The capital rule is a critical first step in ending the conservatorship of Fannie Mae and Freddie Mac, which NCRC has supported, but the end of the conservatorship should not mean that the nation shrinks its commitment to facilitating homeownership for LMI families, including those with less than perfect credit, those who have low down payments, those in rural and tribal communities and many others that have been traditionally underserved. The conventional mortgage market can and must continue serve these borrowers as well in a safe and sound way. Homeownership has helped generations of Americans build wealth and climb the economic ladder. The ability of Fannie and Freddie to carry out their mission must be strengthened and not weakened.”

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