Fannie Mae (FNMA)

[navycmdr]

Conservatives Denounce Proposed Changes to Capital Rule

Mon 11/29/2021 - [e-mail]



While most industry observers have praised the Federal Housing Finance Agency’s proposal to relax the capital requirements for Fannie Mae and Freddie Mac, the conservative think tanks that normally advocate for less federal regulation find themselves in the unfamiliar position of arguing for a stricter capital framework for the enterprises.

In September, FHFA proposed amendments to the enterprise regulatory capital framework, which had been finalized less than a year earlier. In particular, the agency wants to increase the capital relief Fannie and Freddie receive for their credit-risk transfer activities and reduce the size of the prescribed leverage buffer amount.

Industry stakeholders have been sharply critical of the current rule, which was finalized under the auspices of former Director Mark Calabria. The general complaint was that the rule was overly conservative, requiring the enterprises to hold bank-like capital even though their businesses were more like insurance companies than banks.

More specifically, though, observers complained about the agency’s use of buffers to increase the capital requirements of the GSEs. They pointed out that Calabria’s implementation of the PLBA actually made leverage capital, rather than risk-weighted capital, the binding constraint for the enterprises.