Freddie’s 2Q earnings yesterday were happily robust – given current deficit projections, our nation clearly needs these. Still, we were struck by Freddie’s explanation of FHFA’s new capital policy. Arguing that Freddie complies with stress tests akin to those required of banks, the company goes on to say that these ensure its CRT and related pricing is economically rational. Maybe it is, maybe it isn’t, but that’s not what big banks get to conclude under their stress tests. If they don’t have the capital to book a loan, they can’t book it no matter the price unless they forego capital distributions. And, of course, if a big bank doesn’t have enough capital to meet its minimum requirements, then it can’t make the loan at all no matter the price.
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