Comment

Is the FHFA a Moelis Shop?
This proposed rule is another example. It was presented on June 2018 but calculated with numbers as of end of September 2017. There's no other reason that what the foot print of the exhibit says, to not include a lower DTA allowance in order to publish throughout the media a 3.2% ratio similar to Moelis plan. Thus, a sort of endorsement because later there are numerous soldiers pitching this idea. Pathetic.
-The FHFA doesn't want to include their current Loan Loss Reserve in the Total Capital, which is a basic financial concept (Loan Loss Reserve is TIER2 capital) or it wants to increase the Capital requirement with the expected losses, so that the expected losses are covered twice. First with the regular Capital ratio, later with an increased Capital requirement.
-The Risk-Based Capital ratio includes a minimum Capital (Going-concern buffer) and a DTA allowance, which shouldn't be part of the ratio as the Min Capital is a Capital ratio in itself and you can't add up two Capital ratios. The DTA allowance doesn't make sense because is supposed you set a Capital ratio in order to avoid writing off the DTA, besides the economy is cyclical and the DTAs always prevail, as it's been demonstrated.
-The inclusion of the CRT is flawed because it lowers the Capital requirements. Thus, it prompts companies to do more CRT so that they can buy more Assets to later do more CRT, then more Assets, CRT, etc, and in the end, you have FnF owning or guaranteeing 100% of the mortgage market and being a simple Office of Securitization. Thus, a backdoor Housing Finance System and Utility Model. FnF's competitors just have to push a button in their computer instead of investing in technology to build their own securitization platform.
More Assets means the Core Capital is more leveraged.
The only thing that prevents FnF from owning 100% of the mortgage market is the Minimum Leverage Capital, but that's why Moelis plan calls for a swap JPS for Commons instead of redeeming them, the Treasury's warrant exercised and multiple Stock Offerings, so that the Core Capital increases and you can leverage more the enterprises.
The CRT don't protect FnF from losses, but credit losses. That is, FnF will continue to set aside a provision for modified loans (TDRs) which, by the way, was the cause of the massive losses seen during Conservatorship. Not actual credit losses but accounting losses (no cash charges). The reserve for modified loans is recovered in full during the life of the loan but with the new FASB accounting of expected losses (ASU 2016-13), this reserve can be released on a one fell swoop.
Thus, the CRT operations translate into more leverage and the same risk of losses than before.

The regulation must be simple. There must be just one Capital ratio standard. For instance, a Total Capital=2%. In the Total Capital is excluded the CRT, DTA allowance and the "Going-concern buffer". With the amount owed by the Treasury, FnF can be deemed Adequately Capitalized but keep the dividend halted until year end 2019 in order to build the Capital needed to redeem the JPS at the time. It would barely affect their valuation close to par-value.
Note that the formula doesn't include projected earnings but it must be taken into consideration in order to not be too tough establishing a Capital ratio, because it's an ability of the enterprises to recoup Capital levels even during a recession, besides the Total Capital is a minimum figure. FnF must hold Capital Surplus.
This is exactly the formula of Risk-Based Capital set forth in the FHEFSSA before it was struck by HERA with a no formula mandate, so that it's up to the FHFA to make up the formula. As it's been demonstrated during Conservatorship, all FHFA's assessments are deadly wrong, this is why the proposed Capital requirements are wrong.
The worst Agency in the history of the U.S.. Even it's been declared unconstitutional. Please, shut down the shop.