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Countercyclical Stress Paths

Two FHFA Working Papers (WP 12-2​ and WP ​14-1​) have developed​ a countercyclical capital approach based on a specific credit risk model.  Below are links to the house price ind​ex and interest rate data that constitute the countercyclical shocks that can be entered as inputs in any credit risk model that would be used to estimate potential credit risk-related losses from mortgage assets.​​ 

Starting with the April 2016 Countercyclical paths, the trend line for each state used to project the HPA shock paths (which revert to trend at 10 years out) and troughs (recall expressed as a percentage of trend) has been updated to incorporate actual data through December 2015.   The prior paths were all based on trend lines based on data through 2001.   In order to not bias the trend lines by including data from an incomplete HPI cycle, we only update the trend lines once an HPI cycle is perceived to have been completed at the national level.   Therefore, these new trend lines will likely not be updated for perhaps 5 to 15 years.  As a consequence of updating the trend lines, the troughs calculated with the new 2015 trends are generally less severe (or less deep) than they would have been if determined from the 2001 trend lines.  Specifically,  for 26 states the new trend lines generate troughs that are less than 5 percent higher (in HPI level, meaning less severe), including for some key states like California, Arizona, Nevada, New Jersey, New York, Illinois, and Texas.  For 10 states the new troughs are between 5 and 10 percent higher, and for another 10 states between 10 and 15 percent higher.  The increases in the troughs for the remaining 4 states (all with small populations except for Virginia) are between 15 and 21 percent higher, and D.C. is about 25 percent higher.  Based upon these changes, the corresponding capital charges, for a geographically diversified portfolio, determined using the countercyclical stress paths will almost certainly be lower than what would have been estimated using the 2001 trend line.​

Questions or comments can be sent to countercyclical@fhfa.gov.

​Description ​Format

Stress path scenarios using monthly state house price appreciation (HPA)


Interest rate scenarios for the 2 year swap, 10 year swap, and PMMS


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