Research Report Analysis of the FHFA Proposal on Enterprise Capital
Edward Golding, Laurie Goodman, Jun Zhu
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The Federal Housing Finance Agency’s (FHFA) recently issued a proposed capital standard for the government-sponsored enterprises (GSEs), Freddie Mac and Fannie Mae. In this brief, we analyze how well the rule aligns risk and capital across the various mortgage attributes and how capital requirements vary across the business cycle, to begin to understand whether the capital standards are appropriately calibrated. Our principal observations are as follows:

  1. In general, the FHFA has captured the most important risk attributes and directionally has aligned capital with the risk.
  2. For high-risk mortgages, especially products used by first-time homebuyers and for many low- and moderate-income households, the proposal overpenalizes risk—that is, allocates more capital than the data would support.
  3. The standard is procyclical, with capital standards either doubling or halving in a two-year period.
Research Areas Wealth and financial well-being Housing finance Housing
Tags Federal housing programs and policies Asset and debts Homelessness Housing and the economy Single-family finance Agency securitization Credit availability Housing finance reform Financial products and services Housing affordability Inequality and mobility Finance
Policy Centers Housing Finance Policy Center