30-10 or Bust
With smaller lenders today joining MBA, NAR, and HomeBuilders’ campaign to squeeze the 30-10 spread, we take a look at the odds the White House, Fed, or Treasury will do as hoped. We think it more than possible that the PSPA could be revised with FHFA consent to allow the GSEs to hold more of their own MBS as a spread stabilizer; whether the GSEs will do so unless forced is another question given the considerable capital cost this would exert.
Another Post-Conservatorship Damoclean Sword
As we noted on Friday, Senate Banking Ranking Member Toomey asked SEC Chairman Gary Gensler a trick question about GSE obligations at the very end of a lengthy letter focused principally on cryptography. Gensler replied that, once Fannie and Freddie leave conservatorship, their status as federal instrumentalities might well end. Were the SEC to think so at the time, trillions in agency investments would be quickly liquidated to conform to regulatory, market, or sovereign investment restrictions.
Quarles Takes FSB Victory Lap
Speaking as he heads toward the end of his term as FSB chair, FRB Gov. Quarles today applauded the FSB for all the work it did to ensure financial stability during the pandemic.
Fed Researchers Conclude U.S. Regulatory Perimeter More Permeable Than Ever
A new Fed staff note builds on a major recent research paper to assess the U.S. regulatory perimeter. It concludes that the debate between entity- and activity-based regulation is a “red herring” in the U.S., urging an “if you do, you are and because you are, you do” approach.
BIS Advances CBDC, Payments Projects
In remarks today, BIS Managing Director Carstens reinforced the benefits of ongoing global work to advance CBDCs, focusing in particular on the BIS Innovation Hub’s recent project on CBDC cross-border settlement and the retail-facing construct (see Client Report CBDC6) endorsed last week by the G7.
OCC’s Libor Assessment Addresses Benchmark Replacement
The OCC today provided national banks with an updated self-assessment tool to gauge their readiness for the end of LIBOR. While a self-assessment, the tool is also an important advisory as to issues about which examiners are likely to inquire.
FHFA Revises Refi Standards, Continues Capital and Mission Rewrite
In remarks today, Acting FHFA Director Thompson announced changes to the GSEs’ refi-underwriting standards aimed at expanding access for low- and moderate-income households.
Crazy for CRT
Now that we have FHFA’s comment deadline – November 26 – we expand our initial analysis of FHFA’s capital rewrite into a more detailed assessment of its strategic impact. How key industry sectors view this new approach will very much depend on what each sector wants – those who want CRT got almost all they desired while those who want bank capital parity lost still more ground to Fannie and Freddie. Assuming the final rule advances ASAP along proposed lines – and we think it will – and combined with the liberalized PSPA, CRTs will define mortgage securitization across anything close to a conventional conforming loan and all the higher-risk products the GSEs can purchase again.
Shot Across the Bow
Late yesterday, Senate Banking Ranking Member Toomey sent letters to Secretary Yellen and FHFA Acting Director Thompson strongly protesting the PSPA rewrite and pending capital proposal. None of Toomey’s concerns is new, although many are now more targeted. While none will sway Administration or FHFA policy, the public nature of Toomey’s attack makes it clear that straightforward confirmation of Sandra Thomson should the Administration nominate her as Waters and others have urge will be even harder than it seemed.
Structured Finance Finds a Friend
As we noted, FHFA wasted no time after the PSPA revision with its proposed changes to GSE capital regulation. Although the changes seemed technical to many observers, the agency’s fact sheet makes clear that they are fundamental. Now, the GSE capital construct is predicated on CRT to move the money and thus preserve the capital, not on a capital raise to big-bank equivalents. FHFA says this makes the GSE regime equivalent to that for global systemically-important banks (GSIBs), but it still differs in key and often critical respects from the regime applicable to U.S. GSIBs. No matter, CRT is the new thing and faster GSE recapitalization is the certain result.
https://fedfin.com/wp-content/uploads/2021/09/GSE-091621.pdf…
As noted yesterday, Treasury and the FHFA pulled the Trump PSPA’s plug, although importantly and widely overlooked is that this is true only when it comes to near-term asset-purchase considerations. Still, with this action atop all the others redefining Fannie and Freddie since Sandra Thompson took over, the GSEs are being reconfigured into agents of Administration policy in concert with being still more critical agencies for housing finance.
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GSEs Get a New, If Familiar, Gig
As noted yesterday, Treasury and the FHFA pulled the Trump PSPA’s plug, although importantly and widely overlooked is that this is true only when it comes to near-term asset-purchase considerations. Still, with this action atop all the others redefining Fannie and Freddie since Sandra Thompson took over, the GSEs are being reconfigured into agents of Administration policy in concert with being still more critical agencies for housing finance.
Warren Renews Demand for Wells Fargo Break-Up
Renewing her attack against Wells Fargo, Sen. Warren (D-MA) has called on the Fed to retract the company’s financial holding company (FHC) status.
Treasury/FHFA Reset the GSEs’ Role in U.S. Housing Finance
As we forecast earlier this year, Treasury and the FHFA today suspended — but did not abrogate — key aspects of the Trump Administration’s final changes to the standards governing Fannie Mae and Freddie Mac under the PSPA.