jtimothyhoward - SEPTEMBER 15, 2021 AT 8:17 PM
My reaction to this re-proposal is that it’s the FHFA bureaucracy,
led by Sandra Thompson, saying, “We know former Director Calabria’s
capital rule is very unpopular, but we can fix it. See?”
With the implication, of course, that there is no need not
to keep Ms. Thompson in place.
As to the “fix,” it’s what you’d expect the bureaucracy to do:
take something that’s an absolute hairball, tweak it to get the
number (as calculated today) down to a level you think most
would say is “tough but fair,” and call that a victory. It’s better
than nothing, but the fix would be only temporary.
Remember, the true risk-based capital number using today’s
book of business is around zero. But that’s because we’ve
had an unprecedented run of home price appreciation.
If you take the Calabria Rube Goldberg machine, tweak it so
that it produces answer of around 3.0 percent capital today,
when the home price environment becomes less favorable you’ll
get a (considerably) higher number, which still won’t be
risk-based; it will be an artifact of the interplay of the
rule’s arbitrary assumptions and exclusions.
I’ll comment on the amendments to the rule, in specifics,
but my bottom line is that FHFA needs to do a much more
thorough overhaul than this for the rule to be something
Fannie and Freddie can build a business on, and investors
can confidently invest in. I think that Mike Calhoun recognizes
this and would be much more inclined to scrap the Calabria rule.
That’s why I hope he’s nominated–and it’s also why the Financial
Establishment is holding up his nomination, and I think is trying to kill it.
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Fishermanjuice22 - SEPTEMBER 16, 2021 AT 9:12 AM
It also doesn’t address the pro cyclical nature of the
rule and is again promoting the failed experiment of CRTs. That used
to be a theoretical failure, but it is now a real failure.
I can’t believe how soon they want to repeat it.
On the bright side, this is just a proposed rule. It likely
will not be finalized by the acting director. If Calhoun is
confirmed, he will have the choice of re-proposing a new rule,
or making adjustments to this proposed rule based on his
knowledge and comments received. Your comments will be
important to getting it right. Starting the rule making
process now could help expedite finishing it quickly
after confirmation.
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