Our Perspective on the Enterprise Regulatory Capital Framework: Focus on the Countercyclical Features

Brief

Our Perspective on the Enterprise Regulatory Capital Framework: Focus on the Countercyclical Features

Abstract

The Federal Housing Finance Agency (FHFA) recently proposed three amendments to the Enterprise Regulatory Capital Framework that could encourage the transfer of mortgage credit risk from Fannie Mae and Freddie Mac to private investors. These changes, however, are designed to address issues that have already arisen. That is, the leverage requirements plus the buffer are binding for Freddie Mac, and the credit risk transfers (CRT) treatment has resulted in a reduction in CRT issuance from Fannie Mae. The FHFA could have been anticipatory and slightly more expansive in the list of items it chose to reconsider. In particular, the agency should reconsider the countercyclical adjustment, as this could result in the GSEs writing less new business, especially for first-time homebuyers and underserved borrowers, if home price appreciation continues.

 

Research Area: 

Centers

To reuse content from Urban Institute, visit copyright.com, search for the publications, choose from a list of licenses, and complete the transaction.
LATEST IN Housing and Housing Finance
To reuse content from Urban Institute, visit copyright.com, search for the publications, choose from a list of licenses, and complete the transaction.