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Fake take down with strong buying into the close. If this doesn’t tell you something, then you’re in the wrong stock.
Power hour?
Big facts.
https://www.fitchratings.com/site/pr/10088673
Fitch Ratings: U.S. Treasury Takes the Long Road on GSE Reform
Fitch Ratings-New York-06 September 2019: The U.S. Treasury's recently issued plan to reform housing Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac is likely to take meaningful time to come to fruition, according to Fitch Ratings. As such, even if the administrative actions outlined in the plan are acted on, Fitch does not expect any impact to the GSEs' credit ratings in the short-to-medium term.
Recap and Release as Model
Treasury's reform plan most closely resembles the "Recapitalize and Release" option as outlined in Fitch's "U.S. Housing Finance: Potential Paths of Reform for Fannie Mae and Freddie Mac" report from April 2018. The Treasury plan advocates for Fannie and Freddie to build capital with the eventual goal of re-privatizing the GSEs and releasing them from conservatorship.
Amendment to PSPA Sought
Importantly, Treasury and the Federal Housing Finance Agency (FHFA) are expected to amend the Treasury's Senior Preferred Stock Purchase Agreement (PSPA); however, the number of steps to be completed prior to amending the PSPA would require a moderate level of time and resources.
Currently, Fannie Mae's and Freddie Mac's corporate debt ratings benefit from meaningful government support under the PSPA, which requires the Treasury to inject funds into Fannie and Freddie to ensure that they maintain positive net worth. As long as Fannie and Freddie remain in conservatorship and continue to be supported by the substantial available funding under the PSPA, their ratings will continue to be linked to the U.S. sovereign rating.
Amending the PSPA to replace the net worth sweep with a periodic commitment fee would allow Fannie and Freddie to start building capital and prepare them for a post-conservatorship world. Treasury's plan calls for continued support through continuation of the PSPA after the GSE's would be released from conservatorship to the extent that Congress does not enact an explicit guarantee on the mortgage-backed securities (MBS). Although Fannie is larger than Freddie, Fannie's availability under the PSPA is significantly less. Fitch expects that while there may be some changes the availability to the GSE's under the PSPA, availability will remain sizeable.
Capital Adequacy and Liquidity Requirement Proposals to be Re-examined
The plan contains over 30 administrative reform recommendations that are actionable, including requesting FHFA to revisit the proposed capital rules released in June 2018 and design liquidity requirements for each entity.
Fitch expects that the FHFA will likely release an updated capital adequacy proposal that would require more capital than the FHFA's proposed (but not finalized) capital rule from June 2018.
Treasury did not take a firm view on the adequacy of the proposed capital rule although it recommended that regulatory capital requirements more closely align with those employed by banks. Fitch estimates that it would take approximately eight years to organically build the amount of risk-based capital that would be required by the initial proposed capital rules.
GSEs Prominent Role in Housing Finance Key to Ratings
Treasury's plan preserves a role, albeit reduced, for Fannie and Freddie to support housing markets. A shrinkage in the agencies' footprints would not necessarily be viewed as a reduction in the agencies' policy roles to the extent that remaining activity is still considered a core part of the mission to provide liquidity, stability and affordability to the mortgage market. The footprint reduction would likely be achieved through changes to the entities' underwriting criteria. More specifically, Treasury recommends the FHFA assess the agencies' cash-out refi loans, loans for investment properties and vacation homes and larger loans, among others to determine whether they are applicable with the agencies' statutory missions and worthy of government support.
Fitch questions the ability for new guarantors to effectively challenge Fannie and Freddie's dominance in the market. Fannie and Freddie both have significant intellectual property and long-established relationships that have been built over several decades, which could prove difficult to replicate. Further, mortgage originators may be hesitant to spend the time and resources necessary build out the required infrastructure necessary to conduct operations with a new guarantor. However, if new entrants are introduced and are successful in taking market share from Fannie and Freddie, their individual policy roles could result in their ratings being notched down from the U.S. sovereign.
Many Hurdles Still to Clear
The plan also requests FHFA to perform broader assessments including reviews of Fannie's and Freddie's current business models, underwriting criteria and affordable housing initiatives which will require significant resources and interagency coordination between Fannie Mae and Freddie Mac, FHFA, HUD, CFPB, GNMA and FSOC. Fitch believes that while these agencies will be pressed to make GSE reform a top priority, the sheer level of coordination these efforts will take could take a number of years.
The reform plan also includes a number of legislative recommendations that, if implemented, could result in a significant change in the competitive landscape of the mortgage market. While there are a number of smaller legislative recommendations that could have a relatively higher likelihood of success, like repealing the statutory definitions of the GSEs' regulatory capital, Fitch considers the possibility of more sweeping legislative reforms to be remote in the current political environment. These recommendations include an explicit government guarantee on the mortgage backed securities, prohibiting certain types of assets guarantors can hold, granting the FHFA increased power to regulate Fannie and Freddie, repealing the GSEs' existing charters, and giving the FHFA the ability to charter new guarantors. If an explicit guarantee on the MBS were to replace the PSPAs supporting the enterprises, their corporate debt ratings could be de-linked from the U.S. sovereign, which would result in downgrades.
Many of the legislative reform proposals in the plan request that Congress enact legislation to solidify administrative reforms achieved over the last several years. The FHFA has made multiple efforts to reduce taxpayer exposure to Fannie and Freddie since the financial crisis. Most notably, retained mortgages held for investment have decreased meaningfully over the last decade while the amount of private credit risk transfer activity has increased.
Contact:
Michael Shepherd, CPA, CFA
Associate Director, Financial Institutions
+1 212 908-9138
Fitch Ratings, Inc.
300 West 57th Street
New York, NY 10019
Christopher Wolfe
Managing Director, North American Banks
+1 212 908-0771
Bain K. Rumohr, CFA
Senior Director, North American Banks
+1 312 368-3153
Media Relations: Hannah James, New York, Tel: +1 646 582 4947, Email: hannah.james@thefitchgroup.com
Additional information is available on www.fitchratings.com
We close green. There, I said it.
A .14¢ drop on 3000 volume. Looks like MM are trying to cause some doubt.
FNMAS red on 31k.
Can FNMA hit 50M in volume today?
15k premarket at 2.98.
German markets seem to like the plan. €2,80 = $3.09
https://finance.yahoo.com/quote/FNM.MU
201917 views?
Free read for me. Google news had a link.
Steven Mnuchin calls for recapitalisation of Fannie and Freddie
https://www.ft.com/content/bad6519e-d01d-11e9-99a4-b5ded7a7fe3f
IV. PROTECTING TAXPAYERS AGAINST BAILOUTS CAPITAL AND LIQUIDITY REQUIREMENTS
1. Capital Requirements
Deficiencies in the GSEs’ regulatory capital framework were a root cause of the GSEs’ growth, risk taking, and near insolvency. As described in the Background section, the GSEs’ regulatory capital requirements were too low relative to their risks, which undermined market discipline and gave the GSEs a competitive advantage over banks and other market participants. In July 2018, the previous FHFA Director proposed a new framework to address these issues by increasing the
60
Given the GSEs and their potential successor guarantors’ central role in the housing finance system and the potential taxpayer exposure with respect to PSPA-backed or Government- guaranteed MBS, each GSE or guarantor should be subject to FHFA-prescribed regulatory capital requirements that require it to be appropriately capitalized by maintaining capital sufficient to remain viable as a going concern after a severe economic downturn and also to ensure that shareholders and unsecured creditors, rather than taxpayers, bear losses. To foster a level playing field with private sector competition, similar credit risks generally should have similar credit risk capital charges across market participants. To manage the limitations of risk- based capital requirements, the regulatory capital framework also should contemplate a simple, transparent, non-risk-based leverage restriction that is calibrated to act as a credible supplementary measure to the risk-based capital requirements.
60 Enterprise Capital Requirements, 83 Fed. Reg. 33,312 (proposed Jul. 17, 2018). FHFA has suspended the GSEs’ existing capital requirements since the beginning of the conservatorship, but according to the proposed rule, “while the [GSEs] are in conservatorship, FHFA will expect Fannie Mae and Freddie Mac to use assumptions about capital described in the rule’s risk-based capital requirements in making pricing and other business decisions.” Id.
GSEs’ regulatory capital requirements.
capital charges to different mortgage loans. It also would provide for separate capital requirements for market risk and operational risk, as well as a going concern buffer.
The proposed rule would assign specific credit ri It is unclear based on publicly available information whether FHFA’s proposed capital rule
61
On a related note, certain statutory definitions in the laws governing FHFA’s authority contain
specific definitions relating to the GSEs’ regulatory capital that are outdated or could otherwise
62
restrict FHFA’s discretion in prescribing regulatory capital requirements. Those statutory
definitions should be repealed and not incorporated into future legislation. Treasury recommends:
? Congress should repeal the existing statutory definitions relating to the GSEs’ regulatory capital that restrict FHFA’s discretion in prescribing regulatory capital requirements, and those definitions should not be incorporated into future legislation. (legislative)
? FHFA’s eventual regulatory capital requirements should require that each guarantor, or each GSE pending legislation, be appropriately capitalized by maintaining capital sufficient to remain viable as a going concern after a severe economic downturn and also to ensure that shareholders and unsecured creditors, rather than taxpayers, bear losses. FHFA’s eventual regulatory capital requirements also should include a simple, transparent leverage restriction that supplements the risk-based capital requirements. (administrative)
? In connection with the new FHFA Director’s ongoing re-assessment of the proposed capital rule, FHFA should disclose additional information on the calibration of the regulatory capital requirements. (administrative)
2. Credit Risk Transfers
In 2013, the GSEs began to develop programs to transfer credit risk on their acquisitions of single-family mortgage loans. These CRT programs have expanded significantly and have become a core part of the GSEs’ single-family businesses. Most of the GSEs’ CRT has been arranged through debt issuance structures – namely Fannie Mae’s Connecticut Avenue Securities (“CAS”) and Freddie Mac’s Structured Agency Credit Risk (“STACR”) securities – that track the performance of a reference pool of mortgage loans that have been securitized into the GSEs’
61 There is perhaps even some basis for doubt on that score. FHFA has projected that, had each GSE been in compliance with the proposed capital rule in the lead up to the financial crisis, Fannie Mae and Freddie Mac would have had only, respectively, $3 billion (10 basis points) and $12 billion (50 basis points) of regulatory capital remaining after the peak cumulative capital losses incurred during the crisis. Id. at 33,327 (presenting in Table 1 Fannie Mae’s capital requirement in comparison to peak capital losses), 33,328 (presenting in Table 3 the same information for Freddie Mac).
62 See FED. HOUS. FIN. AGENCY, ANNUAL REPORT TO CONGRESS 2018, cover letter. 29
satisfies these principles.
underway to re-assess the adequacy of the proposed capital rule. In addition, to ensure that the GSEs’ creditors and counterparties will have the requisite confidence in the final rule, FHFA should disclose additional detail with respect to the calibration of the risk-based capital requirements, including the underlying models, data, and assumptions.
The new FHFA Director should continue FHFA’s effort already
MBS. However, insurance and reinsurance transactions, as well as lender risk sharing and other front-end transactions, are also a growing share of these CRT.
The GSEs’ CRT programs enhance taxpayer protection and foster price discovery and market discipline, and in light of these features, FHFA should continue to support efforts to expand these programs. In particular, the reduction in retained credit risk that is achieved through CRT generally should be reflected in FHFA’s regulatory capital requirements. At the same time, each of the existing CRT structures has strengths and weaknesses, and it remains unclear how CRT will function over the long term. FHFA should therefore encourage the GSEs to continue to engage in a diverse mix of economically sensible CRT, including by increasing reliance on institution-level capital.
Treasury recommends:
? FHFA should, in prescribing regulatory capital requirements, provide for appropriate capital relief to the extent that a guarantor, or a GSE pending legislation, transfers mortgage credit risk through a diverse mix of approved forms of CRT. (administrative)
Volume is 10M. 800k in the last 5 minutes.
There may be news out. Seeing strong buying pressure.
This ain’t it chief.
Thought voting rights were suspended during c-ship? I could be wrong.
Wall’s coming down.
It’s lunch time.
Looks like a gap up this morning boys.
Pretty sure it’s just beginning.
Looks like we’re gapping up this morning.
I’m guessing Friday after hours.
Link to management being tasked to create a recap plan?
Down 11 cents.
Why no real movement on the P’s today?
Power hour in 15.
$5 by Friday?
Picking up steam.
Commons rebounding strong. Must be that rotation.
FNMAS still down 5%.
Not a recco.
FNMAS up on ~15% of 10 day average daily volume.
Definitely not a reco.
Must be that rotation.
Recap at .01 a share....okay.
I don’t see how they are not left out of the conversation. Company knows best.