Comment Detail

Comment

My comments to the proposed capital rule changes stem from questions I have regarding the entire capital rule. I feel that FHFA needs to address these questions and issue a brand new capital rule.

1) What is the purpose of the Dodd Frank Stress Tests, specifically the severely adverse scenario if the actual results do not impact the total capital requirement?
a. The Most recent results show both GSE’s comprehensive income would be sufficient to withstand the severely adverse scenario. Only when establishing a valuation allowance on deferred tax assets would their income alone not be sufficient to absorb the losses.
2) Why are there so many different arbitrary calculations and buffers reflected in the capital rule. These all result in requiring each GSE to have to hold more than 20X in capital than what is justifiable through the stress tests.
3) From a business standpoint does it make sense for the GSE’s to continue with the CRT program? It appears that the actual risk they transfer is extremely minimal and the revenue foregone is quite large.
4) It is quite evident that the current capital rule is overly conservative and can easily stand behind the “protect the tax payer” line. The purpose is to protect the taxpayer from the 100 year flood.
a. What would be the impact and who would be most affected by the GSE’s holding an excessive amount of capital compared to their actual risk if analyzing the actual historical data?
i. One should not deceptively point to the bailout funds drawn from treasury or point to the annual losses from 2008-2011 which used overly inflated #’s for provisions for credit losses as well as reversing the deferred tax assets. Instead, use the benefit of hindsight and redo those income statements using the proper credit loss provisions and deferred tax assets.
ii. It would appear that consumers/homeowners would be the ones who absorb the costs associated with an excessive capital requirement. This was validated last year when Director Calabria implemented the .50 bhp adverse market fee which served the purpose of increasing revenue to build up capital through retained earnings. This was of course recently repealed

In conclusion, after 13 years in conservatorship, FHFA has the luxury of using actual data from two economic crisis’, the 2008 housing crisis and the 2020 Pandemic. Using arbitrary figures and buffers as opposed to actual data when setting the final capital rule is a disservice to the housing industry and the borrowers it serves. Both GSE’s have been reformed through the efforts of the FHFA over the last 13 years. That should be reflected in the capital requirement. Tim Howard is the only person that points to actual data when putting forth is recommendations and suggestions. Of all the comments issued, I would like to see his reviewed in detail and responded to publicly to provide full transparency.