The Center for Responsible Lending, the National Community Stabilization Trust (NCST), the Consumer Federation of America, the National Housing Conference, and the Leadership Conference on Civil and Human Rights, appreciate the opportunity to comment on the proposed rule to amend the Enterprise Regulatory Capital Framework (ERCF) by refining the prescribed leverage buffer amount (PLBA) and the credit risk transfer (CRT) securitization rules for Fannie Mae and Freddie Mac (the Government-Sponsored Enterprises (the GSEs)).

Overview and Executive Summary
We support the Federal Housing Finance Agency (FHFA) helping the GSEs further their mission by:

  • Refining the PLBA to reduce the GSEs’ excessive leverage capital requirements. This will equip the GSEs to promote responsible mortgage credit for more people to enter homeownership, including borrowers of color in underserved communities.
    • However, we oppose linking the PLBA to GSE market share through the Stability Capital Buffer (SCB), as this hamstrings the GSEs’ countercyclical role stabilizing the mortgage market and economy. Linkage burdens the GSEs with greater capital requirements, and borrowers with higher costs, when the GSEs valuably fill the lending void caused by private capital receding in crises.
    • We do not believe that FHFA needs to impose a PLBA, since the leverage capital requirement of 2.5 percent of GSE total adjusted assets is sufficient without one. If FHFA believes that it needs to layer on top of the 2.5 percent capital requirement a PLBA of approximately 50 percent the SCB capital level, we suggest a simple buffer of 0.5 percent of GSE total adjusted assets. This does not penalize the GSEs for playing a countercyclical role and mandates about the same amount of leverage capital.
  • Allowing more market-sensitive treatment of CRT in lowering the prudential floor on any retained CRT exposure to 5 percent, and not requiring that the GSEs apply an overall effectiveness adjustment to retained CRT exposures. This encourages the GSEs to disperse credit risk among investors instead of holding it themselves where taxpayers are ultimately liable. Transferring more risk away from the GSEs bolsters their safety and soundness and that of the mortgage market, which furthers a core component of the GSEs’ mission.

Further Recommendations
We believe, as stated in our comment on the proposed ERCF rule, that the overall framework needs substantial revision well beyond the changes offered for comment. For future rulemaking, we recommend that FHFA, among other revisions:

  • Eliminate the procyclical SCB that disincentivize the GSEs from critical lending in crises when private capital recedes and that raise mortgage prices;
  • Remove from the ERCF rules not specifically designed for GSE regulation;
  • Set leverage capital requirements of 1.5 percent of GSE trust assets and 4 percent of GSE retained portfolio;
  • Count a portion of GSE guarantee fee revenue for ongoing loans towards risk-based capital requirements;
  • Not make the GSEs comply with any non-public methodologies in calculating their risk-weighted assets;
  • Revisit the countercyclical adjustment (CA) to ensure that it will not have unintended negative consequences; and
  • Regulate the GSEs as utilities if and when the GSEs exit conservatorship.

Download the full comment.