Joe Light earns an infrequent Maloni “Yay”

 Protestors should visit Mark Calabria at FHFA 

FHFA’s recent RBC re-proposal reg (compared to its original one) shouldn’t confuse anyone, it’s not rocket science and it is exactly what it looks like. 

A series of complex capital proposals—when applied in concert— designed to blow up or disable the main Fannie and Freddie battle tanks and to the advantage of the large commercial banks, which still envy GSE mortgage market control and revenue. 

Calabria’s ill-fitting scheme to give Fannie and Freddie “bank like” capital requirements, has gone way beyond that and produced something way beyond “bank like”—since there are no existing conflicting analogies in bank law or regulation designed to deny a regulated institution market generated revenue to establish the capital to escape “Conservatorship,” which is what this long-delayed exercise is all about.

Based on specious reasoning, it allows FHFA’s too ideological director to point to something which embodies the idea, “With the GSEs, you never can have enough capital.” 

Instead what we have is Calabria’s “wet dream” of how he would solve all of the lingering big bank problems with active Fannie and Freddie market competition. He would starve the GSEs then give Fannie and Freddie no chance to escape continued FHFA control—not to return to privately owned, market-sensitive financial institutions (which ironically is the charge in his other GSE responsibilities). 

Light to the Rescue??? 

But the bloom may have left that planned rose—to Calabria’s regret—when this week, Bloomberg’s Joe Light wrote a most useful article saying what FHFA foes have been saying the new proposal will hurt those who most need GSE financing, i.e. less wealthy families many of whom are black and brown. Then, look at what we are seeing and hearing in America’s streets.

In terms of added pressure (political) on FHFA and Calabria, Light’s article and its headline--in a major business publication--will get the attention of stakeholders—and maybe a few Senators and Congressmen-- more than what the few GSE allies have said.

https://www.bloomberg.com/news/articles/2020-06-01/fannie-freddie-capital-rule-seen-harming-less-wealthy-borrowers  

 (See headline and segment below.)

Fannie-Freddie Capital Rule Seen Harming Less-Wealthy Borrowers
By Joe Light

June 1, 2020, 6:00 AM EDT 

“A top regulator’s plan for boosting Fannie Mae and Freddie Mac’s ability to withstand losses could mean higher costs for many mortgage borrowers, with the burden falling most heavily on those with less wealth and lower incomes, according to economists and housing-finance experts.

The 424-page rule released for comment by the Federal Housing Finance Agency last month would dramatically raise the amount of capital the two mortgage-finance giants must hold and likely increase fees they charge for guaranteeing loans, which would hit borrowers in the form of higher interest rates.

FHFA Director Mark Calabria’s proposal highlights the fine line his independent agency and the U.S. Treasury Department must walk to achieve their stated goal of freeing Fannie and Freddie from the government’s grip. To claim success, they will likely have to pull off a juggling act of keeping down borrowers’ costs, protecting taxpayers, appeasing mortgage-bond holders and enticing stock investors needed to re-capitalize the companies.

Mortgage rates would have to rise between 0.15 and 0.2 percentage point on average to meet Calabria’s proposed capital requirements, all else being equal, according to Bob Ryan, who was a senior FHFA adviser until mid-2019 and now consults for firms in the mortgage industry.

The higher interest rates could weigh most heavily on borrowers with lower credit scores and smaller down payments, said Moody’s Analytics chief economist Mark Zandi. In a stressed economic environment, those borrowers might see rates as much as half a percentage point higher than they otherwise would, Zandi said. That would mean, for example, that someone with a $200,000, a 30-year mortgage would pay an additional $58 a month if their interest rate was 4.5% rather than 4%.

“It’s confusing to me,” Zandi said of the proposed rule. “I’m not really sure who benefits from this. I’m not even sure it helps their goal of privatizing” Fannie and Freddie.

If either capital requirements or return demands increase, fees also rise.

Maloni, 6-3-2020