Dave Stevens on Proposed Capital Rule: Don’t Be Silent

By Dave Stevens

This past week, the FHFA released a proposed capital rule that potentially would be finalized before GSE reform.

In the proposed rule, the total capital required will not only take many years to build, but to price to these capital standards will require higher pricing across the board, and steeper risk-based pricing for higher-LTV loans.

While we all should support strong capital standards, it puts the cart before the horse to start with capital and then to make public comments about moving quickly to release the two companies. The reform plan should be clear first. After the plan for the long-term structure is clear, then the recap and release could be part of the process.

It is impossible to have confidence in the outcome, when FHFA Director Mark Calabria has yet to talk about what a consent order and/or modification to the PSPA (or the end of it) might include in the way of institutional structure, products, loan purpose, impacts to single and multifamily, affordable lending, and other standards.

In addition, in his rush to release, questions remain about the nature of the government guarantee behind the MBS as privatized companies. It seems clear to me, as of this writing, that Calabria may be planning to have the capital be the primary backstop. In other words the capital should calm investors in the absence of an explicit government guaranty.

This set of steps forward that the Director is taking would likely be a victory for balance sheet lenders. For non-banks, competitiveness and having equal access to the markets may take a step backward.

I know industry is flush with full pipelines and focus on this issue may not be a high priority but I encourage CEOs and stakeholders to get actively organized in your respective state and national trade groups. Demand to have better knowledge of the plan before this recap process gets going. These statements and actions need to happen now from stakeholders.

The Mortgage Bankers Association’s paper on GSE Reform is one of several proposals that includes looking at capital standards. However, their Housing Finance Reform plan was clear that reform was mandatory before recap and release. While not all agree with their total plan, it had many elements that others shared as a platform, such as an explicit guaranty, commitment to affordable lending, level playing field and transparency, and more.

As stated in their plan: “Clear Road Map and End State: To promote market understanding of the transition, GSE reform legislation should outline the transition road map in sufficient detail, including steps that must be completed prior to chartering the Guarantors.”

I am not sure of the MBA’s position today. But business models may be threatened under the current path, and the impact to consumers could be adverse to expanding equitable housing opportunities.

Don’t be silent.


David H. Stevens, CMB, is a Mortgage Media Advisor, and former SVP of Single Family at Freddie Mac, former EVP at Wells Fargo Home Mortgage, former President and COO of the Long and Foster Realty Companies, former Assistant Secretary of Housing and FHA Commissioner, former CEO of the Mortgage Bankers Association.