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Robert Dearborn
RTD Real Estate Services, Inc.
Government Agency:
33 yr residential r.e. investor; Fnma emplye 88-93
Rule Number:
Federal Register Citation:
85 FR 39274
12 CFR Part 1240
View Document:
View Document 1.91 MB


The end result of the 2020 Reproposal Captal Rule is approximately 77% more capital required to be held by the GSES' than under the 2018 proposal.  Once they are released from the conservatorship, management will likely include buffers above that to decrease the likelihood of equity holders not receiving their dividends.  

For the last 50+ years, this almost unique partnership between government and private capital has worked WITHOUT the GSES' holding 4+% in capital.  In fact, over the previous 50+ years, the government partner in this relationship has fared quite well financially, including the benefits of NOT having all these mortgages show up as a liability on the governments balance sheet due to the implicit government guarantee in the capital markets. 

Within the previous 50+ years, the government has NEVER required the GSES' to hold THIS MUCH CAPITAL!  Sometimes it is better to "do no harm", then to attempt an undertaking that could have the following unintended negative repercussions:

(1)  Damaging the American family balance sheet and income statement, as their primary asset (i.e., their home) is not worth as much as it would be due to the increased carrying costs through higher guarantee fees on their mortgage and subsequent increase in expenses on their income statement.  Prospective buyers of their biggest asset will bid less due to the increased carrying costs of higher guarantee fees.

(2)  The GSES' safety and soundness could be worse, because the GSES' could no longer be competitive on bidding for low risk mortgage loans and must move up the risk spectrum to achieve returns commensurate with attracting private capital in the marketplace. 

(3)  If more competitors enter the Private Label Securities business and there is a "race to the bottom" in both quality and price of mortgage loans, we could see a repeat of the Great Financial Crisis.

I don't envy the FHFA'S choice between higher capital requirements  (greater protection from "tail risks" for taxpayers) and lower capital requirements  (maximizing American homeowners income statement and balance sheet and proving lower multifamily housing costs). 

But has this almost uniquely American blend of Government and Private Capital, really cost the government anything over the last 50+ years?

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