FHFA’s proposed guidance for the GSEs on prudential and operational standards was published today in the Federal Register. The proposal implements one of the key supervisory sections of the 2008 reform law. Congress allowed FHFA to set these standards either by rule – tougher – or guidance – more flexible – and FHFA has chosen the latter course. As a result, the standards are broad injunctions for Fannie, Freddie and the FHLBs to do right, injunctions phrased in such general terms that the GSEs can largely continue to muddle along as before. That muddle they have is evidenced yet again by the most recent FHFA examination report which, as we noted, outlined a set of very significant, ongoing prudential risks at all of the GSEs.

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