Comment Detail

Comment

As authors of the letter that follows, Mike Molesky brings many years of risk analytics and modeling and Mark Goldhaber has years of housing and mortgage policy expertise. The ongoing willingness of FHFA to ask both technical and policy questions should ultimately lead to better answers on appropriate methodology and level of guarantee fees; for this FHFA should be commended

There is an old saying “ in asking what time is it, I need to know the time, not how the watch is built” In the case of guaranteed fees and capital assumptions, in fact you do need to understand how the watch is built to assure that you get to the appropriate policy objectives and guarantee fee. For example:

1. Why aren’t the significant differences in loss rates recognized between fixed rate owner-occupied purchase loans and fixed rate owner-occupied rate-and-term refinanced loans in determining G-fees and LLPA’s
2. Is the targeted ROE justifiable relative to the nature of the net risk exposure and purpose of the enterprise?
3.With regards the suggested levels of capital used for pricing purposes, is the calculation done assuming no cross-subsidization between origination years, i.e., is each transaction intended to “stand on its own”? Or is the calculation of capital developed as required for a portfolio exposure where risk is generally spread across years?