Four Big Things the FHFA Needs to Get Right in Its GSE Capital Rule

There are four big issues the Federal Housing Finance Agency, the regulator of Freddie Mac and Fannie Mae, will need to address to finalize its proposed minimum required capital rule for the two giant companies, so that it is not just up-to-date with the latest thinking on risk and regulation but demonstrably also right down the middle of the fairway. This paper also addresses why it will take considerable courage – specifically, political courage – to do so. The importance of this is greater than “just getting regulation right.” If the two companies are to successfully exit conservatorship, Don Layton argues, the political support needed will be materially helped or hurt by whether the FHFA’s capital rule is or is not generally deemed professional, credible and unbiased.