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  • Comment Detail

  • Date: 06/20/18
    First Name: Carlos
    Last Name: Vignote
    Organization: N/A
    City: N/A
    State: N/A
    Attachment: N/A
    Number: RIN-2590-AA95

  • Comment

    Regarding the Question 37. The FHFA can't make up financial concepts. A Reserve for Future Losses is always Capital due to its loss-absorbing capabilities. Although they are expected losses or, as Freddie Mac mistakenly says: "estimates of incurred losses", they aren't realized losses yet (the label "incurred" is flawed). It's Capital with a lower quality, that's why it's called TIER2 Capital. Losses are accrued in a Reserve when expected, as opposed to expensed when realized.
    Fannie Mae and Freddie Mac hold a combined $28 billion worth of Total Reserve for Future Losses, comprised for the sum of the Allowance for Loan Losses and the Reserve for Guarantee Losses, that ought to be included in the Total Capital amount.
    The Allowance for Loan Losses has been built mainly due to the reserve set aside when a mortgage is modified (TDR) but it will be recovered in full if the workout succeeds and, more importantly, the FHFA doesn't force them to sell the re-performing loans to the market at fire-sale prices, instead of pooling them again as MBS.
    The loan reclassification HFI to HFS aims at saddling the Enterprises with losses, which are charged against the Reserve mentioned. It's a pot the FHFA spotted and aims at depleting it.
    Finally, a Reserve for Future Losses doesn’t trigger more risk. The FHFA suggestion that the Enterprises should set aside a provision (or more Capital) to cover a Reserve that aims to cover losses makes it a funny story, if this wasn't the greatest interference of a Government in a private company not seen in Communist countries.