Last week, we alerted you to the otherwise unnoticed sections in both the Fannie and Freddie 10-Ks disclosing for the first time that FHFA has set ROE targets for the conservatorships that take effect in 1Q/18.  Our initial analyses, here and here addressed the immediate strategic consequences for GSE g-fees.  We noted then that mandatory ROEs have broader structural impact.  This analysis responds to many of your questions on this critical front.  We turn first to who wants what from specified ROEs and then to how the internal model used to set them might reflect these policy objectives and realign critical pricing considerations across the secondary market.

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