Proposed Capital Rules For Fannie And Freddie Will Drive Up Guarantee Fees And Encourage More Risky Loan Purchases

by confoundedinterest17

The proposed capital rules for Fannie Mae and Freddie Mac will like drive up guarantee fees (or g-fees). Fannie Mae said fees would likely rise 0.2 percentage points on average, after making certain assumptions. Freddie Mac said fees might have to rise between 0.15 percentage points and 0.35 percentage points.

However, the rhetoric about increased g-fees are not appearing in their respective stock prices.

My models for mortgage rates indicate that they could rise by .5 percentage points, based on current conditions. But it really depends on the probability of higher capital requirements and the likelihood of real housing finance reform.

The higher capital requirements will raise mortgage rates and lead to Fannie and Freddie purchasing more risky loans increasing their chance of being a systemic risk to the economy.

I laughed when I saw that the Financial Stability Oversight Council claiming that …

WASHINGTON — The Financial Stability Oversight Council has acknowledged for the first time that any financial strain at Fannie Mae and Freddie Mac would threaten financial stability, and it said the companies may need more of a capital cushion than its regulator has proposed.

The FSOC — created by the Dodd-Frank Act to monitor the financial system for looming risks and currently chaired by Treasury Secretary Steven Mnuchin — came to that conclusion after conducting a review of the secondary mortgage market as part of its recent shift to an activities-based approach to identifying systemic dangers.

Of course, FSOC was created after banks nearly collapsed after the 2008 collapse of house prices (the collateral). But as I pointed out in a Congressional hearing, Fannie Mae and Freddie Mac pose a risk to financial stability as well.

So, it is 10+ years after since the financial crisis and Fannie/Freddie still exist without proper capital controls.

But at least there is a salami named for FHFA Director Mark Calabria.





Leave a Comment

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