Comment Detail

Comment

Only to reiterate Urban Institute and so many other submissions. 4% is too high and would be realistic for a bank, but not a monoline insurance company.

The existing capital, as presented in the Dodd-Frank Stress tests is sufficient (see the USMI report with that graphic).

The Urban Institute provided calculations on the G-fee for a "utility" like return on capital. However, included in this calculation is the ever-present 10 BP "tax" imposed by Treasury already. Not to mention the 23% tax rate for the corporation. Not to mention that if (hopefully, when) these companies are released from conservatorship, there would be taxes on dividends paid by preferred and common shareholders.

The utility model is primed. In fact, the GSEs already operate with commitments to low-income housing and housing trust fund and many other stipulations from the FHFA as regulator.

The goal of the conservator has been met. These companies are safe, sound and solvent. A simpler scheme of 2.5% capital to loans would be easily met with a combination of common and preferred shares. Unfortunately, the interest could have been 4% or 5% for preferred stock not too long ago, but that ship has sailed with these delays in release.

Lastly, the CRT is a failed mechanism, which is unnecessary given the Dodd-Frank stress tests. It only serves to enrich the buyers of these securities. The potential income could be offset by some assurance (i.e. FDIC like) insurance in a catastrophe. This would be covered by the existing 10 BP that is being charged by the US Treasury.

Conclusion:
Reduce and simplify the scheme to 2.5% of capital, with perhaps some minor risk-weighting
Eliminate the 10 BP surcharge to the US Treasury and replace with the guarantee fee in a catastrophic event, in turn
Eliminate the usage of CRT

As a utility, the mortgage finance system would work as intended. The existing and future companies and shareholders would be paying taxes, as they should on these privately-owned companies.