Winners and Losers
Building on our analysis of the overall final FHFA capital rule, we turn here to an assessment of the rule’s strategic impact. Although much will be different due to the new rules in terms of GSE ROE, ROA, and product choice, the capital advantages still afforded the GSEs ensure they will remain the defining force in U.S. housing finance for the foreseeable future in or out of conservatorship. To the extent the Biden Administration is able to change FHFA’s standards, this will only be more true, although product-by-product and structure-by-structure configurations will realign following a policy shift against risk-based pricing, towards express affordability standards, and in more favor of capital markets products for risk transfer. A Yellen Treasury will be still more demanding of systemic designation outside conservatorship along with supporting a quasi-fiscal role for Fannie Mae, Freddie Mac, and the FHLBs.
