Capital and CRT

FHFA has finalized new capital rules for the GSEs designed to accelerate the credit-risk transfer the
agency now deems essential for a fast-acting conservatorship exit. We continue to think that, for as
long as CRT requires first-loss tranches backed by the GSEs, the GSEs will be wards of the state
because a broad market for other forms of CRT cannot exist without bank participation. In 2018, we
reviewed the Basel IV rules that might make this possible. With the U.S. banking agencies now finally
readying to propose these standards for U.S. adoption, we review their terms, conditions, prospects,
and housing-finance implications.