Democrats slam FHFA for proposed rule on GSE capital requirements

by Ryan Smith30 Jul 2020

Democratic lawmakers led by House Financial Services Chairwoman Maxine Waters are demanding that the Federal Housing Finance Agency set aside new capital requirements for Fannie Mae and Freddie Mac until after the COVID-19 crisis passes. The lawmakers also urged the FHFA to provide better analysis on how the proposed rule change would affect borrowers of color.

In a report to Congress last month, FHFA Director Mark Calabria said that Fannie and Freddie were “inarguably undercapitalized for their size, risk, and systemic importance,” and that the GSEs would not be able to withstand a serious economic downturn. Calabria said the new capital rule – outlined in a 424-page rule released for public comment May 20 – would require Fannie and Freddie to become “safe and sound” financial institutions in order to exit conservatorship. This means they would be required to have enough capital to enable them to weather economic downturns.

However, Waters, Rep. William Lacy Clay (D-Mo.) and Rep. Denny Heck (D-Wash.) said in a letter that the FHFA should prioritize economic recovery and delay the rule until after the pandemic has passed.

The lawmakers wrote that “advocates are raising serious concerns that this rule would have harmful impacts on access to credit for underserved borrowers, including borrowers of color and lower income borrowers. Furthermore, this rulemaking comes at a time when the coronavirus (COVID-19) pandemic continues to inflict serious public health and economic harm in a number of ways.

“We are concerned that the goals of quickly recapitalizing the Enterprises may inadvertently interfere with the broader economy’s recovery from today’s crisis,” they wrote. “As such, we respectfully request that you prioritize economic recovery and pause this rulemaking until after the COVID-19 crisis passes.”

Waters, Clay and Heck also asked that the FHFA gather more feedback and “incorporate a detailed analysis” on how the rile would affect access to credit for underserved borrowers, “including estimates of how many borrowers could be denied access to credit and how much more on average a borrower will have to pay for a mortgage under this rule.”

The lawmakers said they were “very concerned” that the new capital rule would slow the nation’s economic recovery from the COVID-19 crisis by increasing borrowing costs and hampering the GSEs’ ability to provide liquidity for the housing market.

“Some estimates show FHFA’s proposal will translate into a substantial increase in g-fees by 15 to 20 basis points,” they wrote.  

“Further, we are concerned that the people this rule would hurt the most are people of color, who bore the brunt of the foreclosure crisis that hit in the aftermath of 2008 due in no small part to discriminatory and predatory lending practices,” they wrote. “Many communities and people of color have yet to fully recover from the losses they bore as a result of the 2008 crisis, and Black homeownership rates are at the same levels now as they were before housing discrimination was outlawed in this country. We cannot afford to backslide on what little progress we have made by rushing through this capital rule without sufficiently understanding the impacts on people of color.”

Waters, Clay and Heck said that the FHFA should provide a sufficient analysis of the rule’s impact on borrowers of color, and extend the time for public comment accordingly. They also slammed Calabria for setting an inadequate timeline for public comment on the 424-page rule in the first place.

“The 60-day time frame for comments is simply untenable for such a lengthy and complex proposal with such broad implications for the housing and mortgage markets even during normal conditions, but egregiously so during a global pandemic when stakeholders, some with limited resources, are unable to provide meaningful feedback on a proposal that lacks sufficient analysis to fully understand its impacts,” the lawmakers wrote.