Certified Forensic Loan Auditors, LLC

 
  Upcoming Classes

Search CFLA's Article Archive:

A Recent FHFA Study Shows the Challenge in Pursuing Multiple, Conflicting Goals

valuewalk.com | May 27, 2014

by Michael Ide

When details of the Crapo-Johnson proposal for reforming Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) were first released, one of the surprises was that it would set capital requirements for any bank participating in the new program at 10% of risk weighted assets. At that level (and with a reinsurance policy on top), it’s hard to argue that Fannie Mae and Freddie Mac would be vulnerable to another housing crisis, but the additional financing costs would likely push lower income prospective homeowners out of the market.

This same tension between wanting to both shield taxpayers from risk and ensure that affordable mortgages are available is on display in a recent paper from the Federal Housing Finance Agency’s Office of Capital Policy Countercyclical Capital Regime Revisited: Tests of Robustness, written by Scott Smith, Debra Fuller, Alex Bogin, Nataliya Polkovnichenko, and Jesse Weiher.

Fannie Mae, Freddie Mac: Static capital requirements imagine that the past is a guide for future crises

The paper argues that the problem with capital requirements in the past is that they tend to be pro-cyclical (something that Basell III attempts to address) and static, based on the evaluation of previous crises.

“The biggest limitation of the 1992 Act was the requirement to base the capital charge on a stress test based on a worst-case historical experience,” they write. “The observable worst case experience at the time the rule was written proved to be not nearly as severe, in terms of a shock to HPI, as would occur during the 2008-2011 time period.”

It’s hard to imagine facing a worse housing crisis than the one we are still recovering from, but that doesn’t mean it won’t happen.

A potential fix, which Smith et al are back-testing in this paper, is to scale the severity of the stress test (and in turn scale capital requirements) with the growth in the house price index (HPI) so that as the market goes through a housing cycle, lending becomes more expensive and banks are less likely to extend mortgages. When prices start to fall capital requirements on newly originated mortgages would also come down, making it easier for lending to pick up again.

“Any firm adhering to the countercyclical capital requirements leading up to that period would have been confronted with excessive capital requirements for, and hence likely would not have acquired, many of the loans that would later fail,” they write.

Fannie Mae, Freddie Mac’s proposed plan would mostly eliminate capital requirement judgment calls

The idea is that not only are banks protected from a shock, the shock itself should be less severe because the market top isn’t as high. The trough used to measure stress test severity is reevaluated once per housing cycle, but beyond that there isn’t a lot of room in the proposed model for regulators to make judgment calls. Whether that’s a good or bad thing probably says a lot about your view of regulators.

The paper claims this approach would have saved Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), and that’s probably true, but it completely ignores the other goal – giving people access to affordable home financing. If the only goal were to shield taxpayers, the government could just exit the secondary mortgage market (as some conservatives would like it to do). Otherwise, there has to be a balance between the two goals.

 

Back to May 2014 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

SEE BELOW- http://www.certifiedforensicloanauditors.com

Call us toll free at 888-758-2352

Bookmark and Share
spacer
Facebook Like us on Facebook
Twitter Follow us on Twitter
YouTube View our YouTube Videos
LinkedIn Connect to us on Linkedin
 
BBB Logo

 

spacer
Contact us or view our Sample Documents & Audits by completing the form below.

  • Reload
  • Should be Empty:




 

DVD Sets Only $99

 

FREE Mortgage Fraud Analysis

 

Order Cutting-Edge Services Now

 

Quiet Title Packages from Licensed Attorneys

 

Affiliate Services

 

CFLA Sponsored Attorney Links

 

Take-Home Education Package

 

ALB Law Firm

 

Advocate Legal

 

The True News Network

 

Rubenstein Business Law

 

Atighechi Law Group

 

Scunziano & Associates

 

Get Certified to Perform Mortgage Securitization Audits

 

CFLA Training Academy

 

Expert Witness Services

 

Cutting Edge Expert Securitization Reports

 

CFLA Credit Cards

 

Breaking News

 

Letters to the Editor

 

CFLA Weekly Newsletters

 

Code of Ethics

 

Testimonials

 

Instructional Videos

 

Job Opportunities

 

License Opportunities

 

MARS Rule

 

Product Samples

 

Resource Links

 

Servicer Information

 

Foreclosure Laws

 

REST Report

 

Quiet Title Packages from Licensed Attorneys

 

Advertise on CFLA

 

Advertising Space: Mortgage Securitization, Quiet Title

 

Certified Forensic Loan Auditors, LLC
13101 West Washington Blvd.
Suite 444
Los Angeles, CA 90066

Toll Free: 888-758-CFLA (2352)
Mobile Users: CLICK TO CALL
info@certifiedforensicloanauditors.com

   
 
CFLA IS NOT A LAW FIRM AND DOES NOT PROVIDE ANY LEGAL ADVICE. CFLA DOES NOT OFFER FORECLOSURE CONSULTING OR FORECLOSURE RELIEF
SERVICES. CFLA DOES NOT OFFER OR ASSIST WITH ANY LOAN MODIFICATION SERVICE. CFLA ALWAYS RECOMMENDS THAT CLIENTS RETAIN COMPETENT COUNSEL IN THEIR RESPECTIVE JURISDICTION. CFLA HAS A FREE PROGRAM TO REFER CFLA CLIENTS TO LAW FIRMS IN NEARLY EVERY STATE AND CFLA
DOES NOT CHARGE OR OBTAIN REFERRALS FEES FOR THESE SERVICES. SERVICES NOT OFFERED TO RESIDENTS OF THE STATE OF NEVADA.

 
Home About Us Privacy Policy Terms of Service Disclaimer SERVICES Careers Contact Us
 
COPYRIGHT © 2007-2016 Certified Forensic Loan Auditors ™ All rights reserved