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  • Comment Detail

  • Date: 07/23/20
    First Name: Don
    Last Name: Granstaff
    Organization: N/A
    City: N/A
    State: N/A
    Attachment: N/A
    Number: RIN-2590-AA95

  • Comment

    FHFA should reduce the capital requirement to $120B.

    The GSEs passed the 2008 housing crisis with $180B (though I don't agree they really needed the bailout). At that time, there were sub-prime loans, Alt-A loans and did not have CRT.

    The GSEs have now a more stringent credit scoring system, no more sub-prime & Alt-A loans, and a Credit Risk Transfer measure in place to adsorb the first layer loss, the capital requirement should be far less than $180B.

    Too high a capital requirement will imply unnecessary higher mortgage cost to the general public.
    First, the companies will need to raise equity in amounts never before done, by an even larger margin than expected. Second, the projected return-on-equity (ROE) of the companies, which is the single most important measure of financial success for large financial institutions, will be under-market, and thus render the shares in any IPO unattractive, until enough years have gone by to show that increased g-fees and other impacts of the capital rule proposal are able to generate an ROE of at least 8 to 9 percent after tax. Third, the increased pricing required to deliver a return on the $243 billion level of capital will shrink the GSEs’ market share, leading to declining revenues and profits, which investors will not like.