#LTV – Federal Financial Analytics

30 11, 2023

FedFin on: FHA’s Mission and Mishaps

Arezou Rafikian2023-11-30T14:04:44-05:00November 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

Eliza Allen2023-11-30T12:03:15-05:00November 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…

16 11, 2023

GSE-111623

Eliza Allen2023-11-16T12:35:35-05:00November 16th, 2023|4- GSE Activity Report|

More for Mortgages?

As our reports on the Senate and House hearings with bank regulators made clear, our prediction that the agencies would compromise on mortgage risk-based capital requirements will prove itself in the final standards. However, it’s far from clear if the compromise the agencies think will satisfy Congress will do much beyond directly addressing concerns that the proposal adversely affects LMI loans.

GSE-111623.pdf…

14 09, 2023

CAPITAL235

Eliza Allen2023-09-14T14:23:57-04:00September 14th, 2023|5- Client Report|

GOP Blasts Basel End-Game Regs, Dems Seek a Few Changes

With HFSC Chairman McHenry (R-NC) leading the way, GOP Members of the panel’s Financial Institutions Subcommittee today blasted the banking agencies’ end-game proposal (see Client Report CAPITAL234). Republicans were unanimous in joining leadership’s attack on the proposal’s process and substance, pointing to what they called incomplete impact analyses, an inexplicably short comment period, and adverse macroeconomic and regional-bank implications. Democrats led by Ranking Member Waters (D-CA) were more restrained and in some cases supported the proposal, but concerns were also noted with specific provisions (e.g., re the treatment of certain mortgage and securitization assets) and the interface with the pending CRA final rule. We continue to expect the banking agencies to hold firm to the proposal in broad terms and make minimal, if any, changes to the comment deadline. However, pressure from Republicans and the industry could well force renewed and what many would consider improved impact analyses designed not only to allay political opposition, but also the courts if litigation challenges the final rule.

CAPITAL235.pdf…

4 08, 2023

FedFin on: Credit-Risk Capital Rewrite

Arezou Rafikian2023-08-04T13:41:04-04:00August 4th, 2023|The Vault|

In this report, we proceed from our assessment of the proposed regulatory capital framework to an analysis of the rules governing credit risk. In addition to eliminating the advanced approach, the proposal imposes higher standards for some assets than under the old standardized approach (SA) via new “expanded” requirements. As detailed here, many expanded risk weightings are higher than current requirements either due to specific risk-weighted assessments (RWAs) or definitions and additional restrictions. This contributes to the added capital costs identified by the banking agencies in their impact assessment, suggesting that lower risk weightings in the expanded approach reflected the reduced risks described in the proposal for other assets and will ultimately have little bearing on regulatory-capital requirements and thus ….

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

4 08, 2023

CAPITAL231

Eliza Allen2023-08-04T13:40:43-04:00August 4th, 2023|1- Financial Services Management|

Credit-Risk Capital Rewrite

In this report, we proceed from our assessment of the proposed regulatory capital framework to an analysis of the rules governing credit risk. In addition to eliminating the advanced approach, the proposal imposes higher standards for some assets than under the old standardized approach (SA) via new “expanded” requirements. As detailed here, many expanded risk weightings are higher than current requirements either due to specific risk-weighted assessments (RWAs) or definitions and additional restrictions. This contributes to the added capital costs identified by the banking agencies in their impact assessment, suggesting that lower risk weightings in the expanded approach reflected the reduced risks described in the proposal for other assets and will ultimately have little bearing on regulatory-capital requirements and thus on the overall ability of banks to expand into lower-risk areas and compete more effectively with nonbanks and foreign banks. Big banks forced to abandon certain activities may expand others receiving capital discounts in the new rules, increasing their footprint in traditional banking in ways that may increase industry consolidation.

CAPITAL231.pdf…

1 08, 2023

FedFin on: Capital Winners – GSEs – and Losers – MI

Eliza Allen2023-08-04T09:44:41-04:00August 1st, 2023|The Vault|

We’ve much more to do to determine the strategic and policy impact of the new credit-, market-, and operational-risk capital rules singly and collectively – a complex task given the 1,089-page rulemaking made harder by some extremely-arcane language that may either mask what the agencies mean or differ from what they meant to mean. Still, several conclusions about mortgage finance are clear: the rules would be less demanding than those at present for many mid-LTV loans, the GSEs’ risk weighting continue to give them a considerable advantage over bank originators and securitizes, and MI lost the limited luster the banking agencies were forced to concede in 2013.

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

28 07, 2023

GSE-072823

William Cross2023-08-14T10:29:36-04:00July 28th, 2023|4- GSE Activity Report|

Capital Winners – GSEs – and Losers – MI

We’ve much more to do to determine the strategic and policy impact of the new credit-, market-, and operational-risk capital rules singly and collectively – a complex task given the 1,089-page rulemaking made harder by some extremely-arcane language that may either mask what the agencies mean or differ from what they meant to mean. Still, several conclusions about mortgage finance are clear: the rules would be less demanding than those at present for many mid-LTV loans, the GSEs’ risk weighting continue to give them a considerable advantage over bank originators and securitizes, and MI lost the limited luster the banking agencies were forced to concede in 2013.

GSE-072823.pdf…

5 01, 2023

GSE-010523

Eliza Allen2023-01-05T12:37:19-05:00January 5th, 2023|4- GSE Activity Report|

End-Game Standards in the End-Time

As we previously noted, the U.S. banking agencies will finally, finally, finally get around to proposing their version of the Basel IV capital rules more recently dubbed the “end-game” standards. These will come with new, unique U.S. fillips due to the tough approach to big-bank capital announced by Fed Vice Chairman Barr strongly supported by Acting Comptroller Hsu and FDIC Chairman Gruenberg along with staff at all three agencies who have been doing this a long time and seen more than a financial crisis or two. This report identifies key mortgage-finance issues with strategic impact along with what’s to become of them in the end-game.

GSE-010522.pdf…

11 04, 2022

GSE-040722

Eliza Allen2023-03-02T11:39:00-05:00April 11th, 2022|4- GSE Activity Report|

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.

GSE-040722.pdf…