Fannie, Freddie to face banklike liquidity standards starting Sept. 1
By Hannah Lang
The Federal Housing Finance Agency quietly imposed new liquidity requirements on Fannie Mae and Freddie Mac in June that will require the mortgage giants to hold more liquid assets to cover sudden funding shortfalls, but that the companies say may result in lower net interest income… However, while the new liquidity framework could prevent the breakdown that led to Fannie and Freddie being placed into conservatorship in 2008, it could also result in more risk-taking, Federal Financial Analytics wrote in a Thursday note to clients. “As we learned the hard way for banks, lots of [high-quality liquid assets] combined with a tough leverage ratio lead to higher risk-taking on the credit side, combined with unwillingness, if not also inability, to serve as market-makers,” the note said. “Given that the GSEs’ mission is secondary mortgage market-making, this creates still more dissonance between GSEs as private sector ventures and GSEs as market stabilizers.” The FHFA has not yet issued any public guidance on the liquidity requirements beyond the company’s own disclosures, which Federal Financial Analytics noted could complicate the GSEs’ efforts to raise the capital they will need to leave conservatorship.
