The FHFA has adopted bank-like capital standards for Fannie and Freddie, but the result won’t be bank-like returns on equity, making a public stock offering for the two entities more difficult.
According to former Fannie Mae CFO Tim Howard, the re-proposed capital requirements are almost 40 times the average of that indicated by stress tests conducted on the GSEs last year.
The move suggests the GSEs’ public offerings — estimated by some to be worth as much as $200 billion — may take place in the midst of the worst economic crisis since the Great Depression.
Borrowers now have the option of simply deferring any forborne payments to the end of their mortgage. In effect, this would work like an interest-free second mortgage, and would become due when the house is sold or the loan is refinanced.
Mortgage servicers’ liquidity issues could ease if non-agency lending is acceptable collateral under the TALF programs, according to Urban Institute’s Jim Parrott.
Jim Parrott: “It seems to me, it would be extremely helpful for them to add non-agency lending as acceptable collateral under these TALF programs, whether at the MBS level or at the loan level."
The new FHFA-sponsored capital rule is finally here. But how long will it take for Fannie and Freddie to meet the standard before they can be released from conservatorship prison?