In this report, we provide our preliminary assessment of the impact of the new banking-agency proposal to excise ratings from regulatory-capital rules. Current MBS standards do not give GSE MBS the all-clear because of Fannie and Freddie’s GSE status; rather, the low regulatory capital accorded GSE MBS is wholly ratings dependent. Thus, the new approach has significant market impact on the demand for GSE MBS vs. PLMBS or whole loans at large banks – an impact we survey below.
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