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Tuesday, September 15, 2020 11:43:09 AM
Here is a link to Calabria's written testimony. He is certainly pushing back against the implied attack made by the title of the hearing.
The last section, titled "Looking Ahead: The Urgent Need to Build Capital at the Enterprises and Advance Housing Finance Reform" (starting on page 15) is the most important for shareholders. The use of the words "urgent need to build capital at the Enterprises" is yet another indicator that Calabria wants capital built ASAP and not over several years.
There are a lot of good quotes in that section, so rather than list them all here I would instead suggest everyone read the section themselves. He seems to be sticking to a 4% capital requirement, though. I'll include that quote:
This May, FHFA took a critical step toward solving this problem when we released a reproposed capital framework for Fannie Mae and Freddie Mac. The framework targets an eventual 25 to 1 leverage ratio, or capital equal to roughly 4 percent of Adjusted Total Assets. This is the amount of loss-absorbing capital that FHFA estimates each Enterprise will need to remain a viable going concern, both on its balance sheet and in the eyes of creditors and counterparties, amid a house price shock on par with the 2008 crash.
In my opinion, Calabria's idea is that even if FnF raise g-fees in order to attract enough private capital to make FnF safe and sound, it is a case of an ounce of prevention being worth a pound of cure.
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