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UI Researchers Evaluate Proposed Changes to Fannie/Freddie

Thursday, December 6, 2018

In June the Federal Housing Finance Agency's (FHFA) issued a proposed capital standard for the government-sponsored enterprises (GSEs), Freddie Mac and Fannie Mae.  Three Urban Institute researchers have analyzed the rule with an eye to answering two questions: how well it will align risk and capital across the various mortgage attributes and how the capital requirement might vary across the business cycle.  Requiring too much capital raises mortgage rates and reduces homeownership; too little results in insolvency and financial crisis. The proposed rule includes two alternative leverage ratio proposals.  Under the first, the GSEs would be required to hold capital equal to 2.5 percent of total assets and off-balance sheet guarantees.  

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