FHFA Proposed Rule On Enterprise Capital (Fannie Mae, Freddie Mac, 2.5% Of Total Assets) Is It Enough?

This is a syndicated repost courtesy of Online Course Notes For Financial Markets and Banking. To view original, click here. Reposted with permission.

Mel Watt and the FHFA (the regulatory body, not a funk band) have issued a proposed rule on how much capital Fannie Mae and Freddie Mac should have to protect taxpayers from losses.

“The Federal Housing Finance Agency (FHFA or the Agency) is proposing a new regulatory capital framework for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the Enterprises), which includes a new framework for risk-based capital requirements and two alternatives for an updated minimum leverage capital requirement.

The risk-based framework would provide a granular assessment of credit risk specific to different mortgage loan categories, as well as market risk, operational risk, and going concern buffer components. The proposed rule would maintain the statutory definitions of core capital and total capital.”

The proposed rule is 368 pages long and it recommending a base 2.5% capital rule.

§ 1240.50 Minimum leverage capital requirement: 2.5 percent alternative.
Each Enterprise shall maintain at all times core capital in an amount at least equal to 2.5 percent of total assets and off-balance sheet guarantees related to securitization activities, or such higher amount as the Director may require pursuant to part 1225 of this chapter.

§ 1240.51 Minimum leverage capital requirement: Bifurcated alternative.
Each Enterprise shall maintain at all times core capital in an amount at least equal to 4% of non-trust assets and 1.5% of trust assets, or such higher amount as the Director may require pursuant to part 1225 of this chapter.

Given that unemployment rates are near decade lows and home prices are above where they were at the peak of the housing bubble, now is a good time to have this discussion.

staatistta

Is 2.5% capital big enough?

fhfa90

 

Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I am a contractor for Money Map Press, publisher of Money Morning, Sure Money, and other information products. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. In some cases I receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.