Fannie Mae (FNMA)

[navycmdr]

GSEs Not Pleased With FHFA’s Re-Proposed Capital Rule

Monday Aug 31, 2020 - [e-mail]



Fannie Mae and Freddie Mac, in new comment letters filed with the Federal Housing Finance Agency, said the re-proposed capital framework will significantly increase the guarantee fees they charge lenders. Filing their comments on Friday, just before the deadline, the enterprises also suggested the rule could cloud the prospects for any public offerings of stock.

In its comment letter, Fannie estimated the guarantee fee on single-family loans would have to increase by 20 basis points in order for investors to achieve a 10% return on capital. This is a modest return, more in keeping for an investment in a low-risk utility than in a financial institution.

Freddie’s estimate was less precise, but potentially gloomier. “The proposal may require Freddie Mac to increase guarantee fees by 15-35 bps, which may increase housing costs for U.S. consumers,” the GSE said.

Both mortgage giants also criticized the new rule’s treatment of credit risk transfers, which dramatically reduce the amount of capital relief the companies would receive for these transactions. Fannie pointed out that, by de-incentivizing the use of CRT, the proposed rule would increase the GSEs’ reliance on private mortgage insurers, which already represent their largest counter-party risk.

“The capital framework should recognize the risk-reducing nature of CRT and the historical policy support provided by FHFA and Treasury to develop the CRT program,” Freddie said.