NAR submitted a comment letter in response to the FHFA’s notice of proposed rulemaking (NPRM) regarding a proposed enterprise capital rule for Fannie Mae and Freddie Mac.
The NPRM proposes a new capital rule where the GSEs can use the greater of a risk-based capital rule with several additional buffers or a 4% leverage ratio.
The NAR response outlines several concerns:
- The aggregate level of capital under this proposal is far greater than the losses taken in the crisis or estimates of potential losses provided by the FHFA itself or market analysts. Excess capital raises the cost to the consumer.
- The leverage ratio is too high and will reduce access for homebuyers, while forcing the GSEs to be more risky
- The proposal forces the GSEs to hold risk on portfolio, rather than selling it into the market. This raises risk to the system and cost to the consumer
- The proposal should account for income the GSEs make as well as capital to absorb losses. In a crisis, if 10% of persons cannot pay, 90% still can.
- NAR recommends further evaluation of the proposal in light recent changes to liquidity requirements, the need for clarity on the government support, and recommends the FHFA provide a cost-benefit analysis of impact on homeowners, homebuyers, builders and the industry
- Finally, NAR notes that capital is not a replacement for a strong structure and oversight. To this end, NAR recommends converting the GSEs into market utilities.