On Monday August 31, NMHC and NAA submitted a comment letter to the Federal Housing Finance Agency (FHFA) in response to their proposed regulatory capital framework for the Enterprises, Fannie Mae and Freddie Mac. The proposed framework would determine the capital required to ultimately release the Enterprises from conservatorship which has been in place since 2008. FHFA Director Mark Calabria has stated that this is “critical step in furtherance of FHFA’s stated intention to responsibly end the conservatorships”.
The proposal used the capital framework offered in 2018, commented on by NMHC and NAA, but made sufficient modifications and was, therefore, required to be reissued for public comment. The comment period concluded on August 31.
NMHC and NAA support a robust, rational and transparent capital framework that will allow the Enterprises to serve their housing mission but protect taxpayers from future bailouts. Specifically, the comment letter identified areas of concern where the proposal fell short of these objectives:
- The prudential floor for credit risk transfer in the Proposed Rule will have a detrimental impact on pricing, capital and the business models of the multifamily businesses.
- A lack of information regarding the derivation of the lookup grids and risk multipliers applicable to multifamily mortgage exposures.
- The lookup grids and risk multipliers applicable to multifamily housing would undermine the affordable and workforce housing markets and the Enterprises’ related initiatives.
- The Enterprises have to hold significantly more capital against multifamily housing exposures than the capital a bank must hold.
- The capital requirements are too pro-cyclical.
- Incongruent treatment of multifamily and single-family housing capital requirements.
- The leverage ratio requirements may be the predominant binding capital requirements, overshadowing the risk-based capital requirements.
- Fails to properly address differences in the Enterprises’ multifamily business models.
NMHC and NAA will closely follow the next steps that the FHFA is taking to implement the framework and will seek to engage with them in order to address the issues raised in the comment letter.
Visit the NMHC Advocacy webpage for more information GSEs and Housing Finance Reform.
Related Articles
- Coalition Letter to HUD on DSCR and LTC
- NMHC-NAA Comment Letter to FHFA on FHLBank System
- NMHC-NAA Comment Letter to House Committee on Small Business on Beneficial Ownership Rule
- NMHC-NAA Statement for Senate Banking Hearing on Oversight of Federal Housing Regulator
- Coalition Letter on Like-Kind Exchange Budget Proposal