Fannie Mae-No Politics (FNMA)

[Robert from yahoo bd]

"Simply put, a large financial intermediary does not need to be capitalized at nearly 70 times38 its worst-case government-defined stress test loss.39

[38] The ERCF at $319 billion divided by the $4.5 billion loss equals 70.9 times. This covers both GSEs.

[39] I have previously written on this topic, concluding that the ERCF is well too high (more than double) what is needed to be consistent with the latest stress test results. See “The Latest GSE Stress Test Results: Showcasing the Need for Regulatory Capital Revision (part 2), August 2022. https://furmancenter.org/thestoop/entry/the-latest-gse-stress-test-results-showcasing-the-need-for-regulatory-capital-revision. "

"The primary reason is that it does not seem to account for the extremely high earnings volatility of the mortgage business43 in contrast to the rather stable electric utility business – which I believe mainly drives the latter’s lower cost of capital rather than just the fact that it is price-regulated. However, as described above, if and when serious planning begins on conservatorship exit, it will be real investors who might purchase the shares of the two companies, which will set the cost of capital via what price they would be willing to pay at that time – and not what policy specialists, whether at the FHFA or elsewhere, say it should be."

"
I see no need for a large G-fee increase at all. Instead, my recommendation for eliminating the policy uncertainty is based on my long-held conclusion that the ERCF is just too high, as strongly validated by its obvious inconsistency with the extremely low loss shown by the official stress test results. Thus, the path forward to resolve the current average G-fee inconsistency versus the ERCF is to revise the capital requirement down significantly by replacing it with an updated CCF. "