Why The Capital Rule May Prevent An Offering From Fannie Mae, Freddie Mac

Fannie Mae and Freddie Mac have now officially said that they oppose the capital rule proposed by the Federal Housing Finance Agency. The government-sponsored enterprises agreed with critics of the rule who said the capital rule would increase costs for borrowers.

Fannie Mae, Freddie Mac oppose FHFA's capital rule

In a note over the weekend, analyst Dick Bove of Odeon Capital pointed out that Fannie Mae Chief Financial Officer Celeste Brown said recently that she had reservations about the FHFA's capital rule as it was proposed. He also argued two more points, although his views are controversial.

Bove argued that FHFA Director Mark Calabria "is a highly intellectual, honest, and committed Libertarian who is adamant that the GSEs are not good for the government or the economy." However, others like Tim Pagliara of CapWealth Advisors believe Calabria supports Fannie and Freddie, based on his actions and comments.

Bove also argued that the FHFA "has continued to institute rules that cannot be overturned by anyone from the President on down, that are making Fannie Mae and Freddie Mac unappealing investments" without growth. Pagliara has also disagreed with this view, stating previously that the market needs the GSEs, and the FHFA and Calabria know this.

Unprecedented step

Bove called Fannie Mae's and Freddie Mac's opposition to the FHFA's proposed capital rule "an unprecedented step" because they officially disagree with the agency that oversees them. Both GSEs wrote comments about the capital rule, and they both said they will have to increase mortgage costs if the rule is established as it is currently written.

Fannie and Freddie are asking that the capital rule be "dialed back." They agree with former Freddie Mac CEO Don Layton and Phil Swagel of the Congressional Budget Office, both of whom have raised the same question about the proposed capital rule.

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