Fannie Mae-No Politics (FNMA)

[camaro4me]

When they reach the new threshold will Calabria just up it again?

jtimothyhoward - OCTOBER 18, 2019 AT 9:00 AM

I’ve seen the speculation that Fannie and Freddie’s current statutory minimum capital requirements might be used as triggers for releasing the companies from conservatorship under a consent decree–and also noted that the amount of capital they’re being allowed to retain by foregoing their net worth sweep payments is a few billion higher than these minimum capital numbers–but I’m not convinced this is what will happen.

I find it difficult to imagine that Calabria will release Fannie and Freddie from conservatorship before their new capital requirements have been determined and announced, and these will include new minimums as well as the risk-based numbers.

For the minimums, I think FHFA will go with “Alternative 2” in its June 2018 proposal– 1.5 percent of trust assets and 4 percent of non-trust assets, which would push Fannie’s minimum up to $59 billion compared with $22 billion under the old standard.

The question I keep asking myself is, “How could FHFA justify releasing Fannie and Freddie based on hitting their old minimums after their new, much higher, minimums are known?”

Maybe they’ll just do it anyway, but I’m not sold on that.

An alternative would be for FHFA to make companies’ release point the attainment of their critical capital levels, which are half the minimum requirements.

For Fannie under what I think the new minimums will be–and assuming today’s balance sheet size and composition–that would amount to little less than $30 billion in capital. As always, though, we shall see.