As detailed late last year, Treasury’s Financial Stability Oversight Council added nonbank mortgage origination and servicing to the official systemic hit list.  And, as we forecast at the time, FHFA and the GSEs under its control have now acted not only to address some of FSOC’s concerns, but also longstanding ones about Ginnie Mae’s vulnerability to its mortgage mainline.  The newly-proposed seller-servicer eligibility standard not only increases nonbank capital-equivalence standards, but also establishes a new liquidity framework designed to ensure that nonbanks have their own backstops instead of relying on the bank liquidity facilities targeted by FSOC, the FDIC, and others as a source of contagion risk to banks and a spark for volatility of potentially systemic proportions to U.S. mortgage finance.

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