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Congress Members Call for Pause on GSE Capital Framework

Three members of Congress have requested the Federal Housing Finance Agency (FHFA) pause on its capital framework rulemaking for the GSEs during the pandemic and extend its comment period on the rule proposed this spring. They also requested in-depth analysis on how the proposed rule would impact underserved borrowers.

Maxine Waters, Chairwoman of the House Financial Services Committee; William Lacy Clay, Chair of the Subcommittee on Housing, Community Development and Insurance; and Congressman Denny Heck this week sent a letter to FHFA Director Mark Calabria outlining their requests.

One concern expressed in the letter is that industry stakeholders simply will not have enough time to respond to the 424-page rule by the August 31 deadline for comments. They urged FHFA to extend its comment period and even hold a series of public hearings to allow stakeholders to express any concerns with the rule.

The proposed rule, released May 20, aims to “establish a new regulatory capital framework for the Enterprises” and is “a critical step in furtherance of FHFA’s stated intention to responsibly end the conservatorships,” FHFA stated in a fact sheet with the release of the proposed rule.

The proposal includes risk-based capital requirements and leverage ratio requirements to serve as a backstop to the capital obligations.

The other two major concerns expressed by the representatives are that the new capital requirements may negatively impact low-income and minority borrowers and that “the goals of quickly recapitalizing the Enterprises may inadvertently interfere with the broader economy’s recovery from today’s crisis,” according to the letter.

The representatives ask FHFA to “prioritize economic recovery” during the pandemic by pausing the rulemaking process. They say the 2008 financial crisis was followed by a “slow economic and housing recovery” and that the proposed rule could lead to a slow recovery from today’s pandemic-induced economic recession by impeding the GSEs’ ability to provide liquidity to the housing market.

The letter references estimates that the proposed capital requirements could increase guarantee fees at the GSEs by 15 to 20 basis points.

In addition to pausing the rulemaking process, the representatives ask FHFA to provide further analysis into the rule’s potential impact on underserved borrowers. They ask that FHFA provide insight into the average cost to borrowers, broken down by race and ethnicity.

Calabria has remained steadfast in his goal to prepare the GSEs to exit conservatorship, and as of the release of the rule in May, he did not feel the pandemic provided a reason to waver. In fact, he implied the opposite.

"This national health crisis has affirmed the importance of the Enterprises' mission to serve the American housing market during good times and bad. When credit dries up, low- and moderate-income households are hurt most. We must chart a course for the Enterprises toward a sound capital footing so they can help all Americans in times of stress," Calabria said. "More capital means a stronger foundation on which to weather crises. The time to act is now."

About Author: Krista F. Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.

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