We have reviewed the lengthy new rules FHFA issued finalizing the GSEs’ affordable-housing (AH) goals for 2010 and beyond. As with the proposal, the final rule eliminates AH eligibility for securitized residential and commercial mortgages, ending the huge incentives here that helped to bulk up the GSEs’ portfolios with high-risk (albeit then AAA-rated) RMBS and CMBS before the crisis. The GSEs could still buy this stuff if desired, but the lack of AH credit will stifle their demand and, with it, any spark for recovering private securitization. As proposed, the new rules judge the GSEs not just on AH goals (toughened as required by HERA to better focus on truly low- and moderate-income interests), but also on market factors. This eliminates the goal incentives – not to mention the political ones – for the GSEs to structure “expanded-approval” and similar products that ensured prior goal compliance and, now, ongoing loss.
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