What FHFA Needs to Get Right in Its GSE Capital Rule

The Joint Center for Housing Studies (JCHS) of Harvard University released a working paper by Don Layton, a senior industry fellow at JCHS titled “What the FHFA Needs to Get Right in Its GSE Capital Rule.” The Federal Housing Finance Agency (FHFA) has yet to finalize its proposed rule on the minimum capital that Freddie Mac and Fannie Mae would need when they exit conservatorship at some point in the future. This paper looks at the issues that “must be properly addressed” to achieve a final rule that would “represent the best of professional regulation without politics biasing the result into over-capitalization (which will unduly raise the cost of mortgage credit) or under-capitalization (which puts the financial system at risk).”