GSE capital requirements necessary to maintain stability, liquidity

September 1, 2020

CUNA supports Federal Housing Finance Agency (FHFA) efforts to ensure that Fannie Mae and Freddie Mac (GSEs) have strong capital requirements that allow them to withstand economic downturns while still providing mortgage market liquidity without taxpayer intervention, particularly for low and moderate income borrowers. CUNA submitted comments to FHFA Monday on proposed capital requirements for the GSEs.

“We applaud this continued effort to ensure capital requirements are part of a strong supervisory regime that ensures the safety and soundness of the GSEs during various economic cycles," the letter reads. 

The letter adds that such supervision is a key component of CUNA’s principles for housing finance reform.

CUNA notes that FHFA should also work to balance mortgage affordability with GSE capital requirements and ensure the capital framework recognizes regulatory changes since the 2008 financial crisis.

The capital requirements proposal aims to:

  • Preserve the mortgage risk-sensitive framework of the 2018 proposal, with simplifications and refinements;
  • Increase the quantity and quality of the regulatory capital of the Enterprises to ensure that, during and after conservatorship, each Enterprise operates in a safe and sound manner and is positioned to fulfill its statutory mission to provide stability and ongoing assistance to the secondary mortgage market across the economic cycle; and
  • Address the pro-cyclicality of the risk-based capital requirements of the 2018 proposal, also in furtherance of the safety and soundness of the Enterprises and their countercyclical mission.

The letter also includes CUNA’s responses to a subset of the 107 posed by FHFA that most impact credit unions and credit union service organizations. These specific comments concern certain base risk calculations for modified loans, risk multipliers and the phase in for capital and leverage requirements.