#GSE

31 01, 2024

DAILY013124

2024-01-31T16:57:15-05:00January 31st, 2024|2- Daily Briefing|

Senate Banking Turns to AI’s Impact on Housing Finance

 

Today’s lightly-attended Senate Banking Subcommittee hearing on AI and Housing focused principally on AI governance issues including accountability, model explainability, transparency, and bias.  Sen. Warnock (D-GA) called for action on S. 3692, legislation to prohibit use of algorithmic systems to coordinate – and it is believed thus inflate – rental prices or reduce supply.  Although Subcommittee Chairwoman Smith (D-MN) lauded AI for its potential to boost the housing supply, she and other Democrats raised serious concerns that AI reinforces biases in lending decisions.

Democrats Remain Dubious About the Capital Proposal

Today’s Financial Institutions Subcommittee hearing on the capital rules made it still more clear that more than a few Democrats share at least some GOP concerns.  Chair Barr (R-KY) reiterated points he has frequently made about the poor analytics behind the proposal; Full Committee Ranking Member Waters (D-CA) and Rep. Green (D-TX) were unequivocal in their support.  Other Democrats raised concerns many had previously expressed in comment letters, with Rep. Sherman (D-CA) pointing to problems with the proposal’s impact on capital markets and its lack of credit for private mortgage insurance and Rep. Beatty (D-OH) highlighting concerns with small business credit availability.

Daily013124.pdf

31 01, 2024

GSE-013124a

2024-01-31T12:41:24-05:00January 31st, 2024|4- GSE Activity Report|

Would a Trump Victory Set the GSEs Free?

Common-stock investors clearly think so, but they’re a notably speculative lot and more than likely wrong.  In this report, we lay out why we think the limbo in which the GSEs have languished since 2008 is now a permanent quasi-vegetative state.

GSE-013124a.pdf

31 01, 2024

FedFin on: Steady As They Go Scores

2024-01-31T11:13:57-05:00January 31st, 2024|The Vault|

We have reviewed the 2024 scorecards FHFA released for Fannie and Freddie.  Unlike prior years, it contains no new initiatives or aspirations, largely holding Fannie and Freddie to account for much of what they’ve been asked to do before.  Fannie is given indirect encouragement to continue its title-insurance plans, but that’s only if it comports with added cost-efficiency under several longstanding FHFA goals….

The full report is available to subscription clients. To find out how you can sign up for the service, click here.…

31 01, 2024

GSE-013124

2024-01-31T11:13:49-05:00January 31st, 2024|4- GSE Activity Report|

Steady As They Go Scores

We have reviewed the 2024 scorecards FHFA released for Fannie and Freddie.  Unlike prior years, it contains no new initiatives or aspirations, largely holding Fannie and Freddie to account for much of what they’ve been asked to do before.  Fannie is given indirect encouragement to continue its title-insurance plans, but that’s only if it comports with added cost-efficiency under several longstanding FHFA goals.  The directive regarding property insurance is only somewhat less elliptical, scoring the GSEs on the extent to which they develop property-insurance options that “mitigate risk while furthering sustainable homeownership” – whatever that may come to mean.  Climate risk comes in for mention among goals telling the GSEs to “enhance” consumer understanding of climate risk and do their best to avoid it on their own via monitory and analysis that identify at-risk borrowers and “informs” policy.  And, of course, the GSEs are to be safe and sound, transferring credit risk in large amounts to the greatest extent possible.

GSE-013124.pdf

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22 01, 2024

GSE-012224

2024-01-22T16:02:39-05:00January 22nd, 2024|4- GSE Activity Report|

Securitization and Systemic Risk

A new Fed staff study uses models to conclude that government-backed mortgage securitization  exacerbates financial crises, contradicting conventional wisdom that – GSE blow-ups notwithstanding – properly-regulated GSEs create a liquid, diversified asset pool for an otherwise illiquid, risky asset class.  However, our read of the study leads us to side with conventional wisdom.

GSE-012224.pdf

14 12, 2023

GSE-121423

2023-12-14T15:28:18-05:00December 14th, 2023|4- GSE Activity Report|

Tackling Title

In a blog post today, Fannie quietly renews its quest for alternatives to traditional title insurance.  The post focuses in general on closing costs, noting for example how regressive these are by citing cost differences of 13% for low-income first-time homebuyers than for all homebuyers on median closing costs as a percent of the home purchase price and 19% for non-low-income repeat homebuyers.  Title insurance is discussed at length, with Fannie noting its efforts to allow homeowners to use lower-cost options as well as emphasizing the low risk of title claims due to real-estate data digitalization.  The post does not go on to suggest that Fannie might simply omit a title-insurance requirement for at least first-time or LMI borrowers, but this seems to be the point.

GSE-121423.pdf

6 12, 2023

DAILY120623

2023-12-06T16:42:25-05:00December 6th, 2023|2- Daily Briefing|

OFR Sees Heightened Systemic Risk

Striking a considerably more somber note than the FRB (see Client Report SYSTEMIC97), OFR today concluded that systemic risk is elevated due to an upcoming economic slowdown, heightened inflation,  and geopolitical risk and global conflict.

OCC Cracks Down on BNPL Finance

Reflecting continuing CFPB concerns about buy-now/pay-later finance, the OCC today sets new risk-management standards for federally-chartered entities in this arena.

HFSC Housing Subcommittee Revisits Housing Debate

Today’s HFSC Housing Subcommittee hearing largely followed the staff memo’s outlined political playbook, with Chairman Davidson (R-OH) calling for market-based solutions and Ranking Member Presley (D-MA) arguing that expanded subsidies are necessary alongside zoning reform to make housing affordable.

Fed Proposes Market-Risk Valuation Reporting

Readying disclosures for the market-risk capital rewrite (see FSM Report CAPITAL233), the Federal Reserve has proposed new reporting standards that would require covered banks to disclose valuations of their covered positions taking into account unearned credit spreads, close-out costs, early termination costs, investing and funding costs, liquidity, and model risk.

Fed Proposes New Liquidity Risk Reporting Standards

Reflecting growing fears that banks could not actually monetize HQLAs under stress as proved the case for Credit Suisse, the FRB is also proposing new reporting standards requiring covered companies to report on qualifying master netting agreement compliance with current liquidity-risk measurement standards.

Daily120623.pdf

30 11, 2023

FedFin on: FHA’s Mission and Mishaps

2023-11-30T14:04:44-05:00November 30th, 2023|The Vault|

A new FRB-NY study confirms that 83% of loans from 2000-2022 went to first-time homebuyers, compared to 56% for the GSEs and 57% for private lenders. FHA loans of course have very high LTVs and low scores, with scores improving after 2008 when the PLS market stopped adversely selected FHA even though over half of FHA loans still have scores under 680. FHA sustainability has varied based on these and other factors, but 21.8% of borrowers from 2011-2016 still lost their homes.

The full report is available to subscription clients. To find out how you can sign up for the service, click here.…

30 11, 2023

GSE-113023

2023-11-30T12:03:15-05:00November 30th, 2023|4- GSE Activity Report|

FHA’s Mission and Mishaps

A new FRB-NY study confirms that 83% of loans from 2000-2022 went to first-time homebuyers, compared to 56% for the GSEs and 57% for private lenders.  FHA loans of course have very high LTVs and low scores, with scores improving after 2008 when the PLS market stopped adversely selected FHA even though over half of FHA loans still have scores under 680.  FHA sustainability has varied based on these and other factors, but 21.8% of borrowers from 2011-2016 still lost their homes.

GSE-113023.pdf

27 11, 2023

GSE-112723

2023-11-27T11:49:59-05:00November 27th, 2023|4- GSE Activity Report|

An Advanced View of Regulatory Capital?

The most significant thing in FHFA’s final capital rule is not what is to be done, but what FHFA left out: ending the GSEs’ advanced-approach requirement.  As a result, Fannie and Freddie can still use models for key calculations, a requirement that makes more sense for two complex organizations than it did for the regional banks also long subject to advanced-approach requirements even though the rules required them, like GSIBs, to hold the higher of the standardized or advanced approach.

GSE-112723.pdf

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