Now What?
As detailed in our reports earlier this week on Powell’s appearance before Senate Banking and HFSC, much was said about the pending rewrite of big-bank capital standards. As we’ve noted, this matters a lot to the comparative advantage of GSEs, nonbank mortgage players, and banks large and small. As a result, we here go in depth on what Powell said – and mostly didn’t – about what’s next on these critical standards.
When Sandra Thompson earlier this year enunciated a new equitable-finance mission, we forecast that Fannie and Freddie would undertake an array of new activities that significantly expand their footprint along with their equity and equality impact. As anticipated, the plans announced yesterday by Fannie and Freddie go beyond FHFA’s reiterated mission statement earlier this week, mirroring in some ways the banking agencies’ broad view of CRA as a community-development and racial-equity instrument as well as the boost to LMI housing on which attention long focused. But, for all the public-good creds these plans engender, several will doubtless promote market angst as the GSEs launch pilots that tread heavily on MI, title-insurer, and servicer toes.
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Equitable Endeavors
When Sandra Thompson earlier this year enunciated a new equitable-finance mission, we forecast that Fannie and Freddie would undertake an array of new activities that significantly expand their footprint along with their equity and equality impact. As anticipated, the plans announced yesterday by Fannie and Freddie go beyond FHFA’s reiterated mission statement earlier this week, mirroring in some ways the banking agencies’ broad view of CRA as a community-development and racial-equity instrument as well as the boost to LMI housing on which attention long focused. But, for all the public-good creds these plans engender, several will doubtless promote market angst as the GSEs launch pilots that tread heavily on MI, title-insurer, and servicer toes.
Risk-On CRT for a Risk-Off Market?
In our last CRT analysis, we looked at transaction viability under the Basel IV rewrite set for rapid release once key Fed nominees are finally confirmed. Now, we turn to another viability consideration: the extent to which CRT can thrive in spite of these capital obstacles and accomplish a vital purpose spelled out in a recent Urban Institute report: enhance equitable finance as FHFA demands. In short, we hope so, but it won’t be easy.
In our last CRT analysis, we looked at transaction viability under the Basel IV rewrite set for rapid release once key Fed nominees are finally confirmed. Now, we turn to another viability consideration: the extent to which CRT can thrive in spite of these capital obstacles and accomplish a vital purpose spelled out in a recent Urban Institute report: enhance equitable finance as FHFA demands. In short, we hope so, but it won’t be easy.
The full report is available to subscription clients. To find out how you can sign up for the service, click here.…
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.