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60 "ere is a lot of that speculation at this point," said Haynie of the pending changes. "But regardless of what happens, the GSEs continue along the path of recapitalization that has begun under Director Calabria." And the GSEs need capital—a lot of it— according to Haynie and his peers. "We would like to see Treasury and FHFA work out the government ownership, if you will, that would permit the GSEs to go into the capital markets and raise equity. at's because, Haynie explained, "based on retained earnings, it is going to take them a good 10 years to recapitalize." And, he adds, "a lot can happen in 10 years." Haynie believes that any new director would still support strong levels of capital, because that protects the taxpayer. "e last thing that that I think the Biden administration would want would be somehow having to bail out Fannie Mae and Freddie Mac again—that would not be the best way to get re-elected," Haynie quipped. Bartlett suggests one would expect any potential replacement to implement policies similar to those of Mel Watt, President Obama's appointment, which could include the resumption of risk layering, competition with FHA, and cross-subsidies. Both Peter and Bartlett offer reasons to root against those types of policies. "Such policy changes would stoke demand and lead to even higher home prices," Bartlett said. Peter noted, "Given the current supply shortage, a renewed race to the bottom on lending standards between the GSEs and FHA, as happened under Mel Watt, will not bring in new borrowers, but rather price them out of the market." In terms of already announced policies, FHFA's capital rule for GSEs "created a countercyclical adjustment to risk-based capital requirements based on a long-term trend of home prices," Peter explained. At year-end of 2020, FHFA noted that home prices were 14% above their long- term trend and are expected to increase significantly in 2021. is means that the GSEs will have to set aside more capital in the future, Peter says, which will increase the cost of mortgage credit. e effect of some of FHFA's new rules and proposals is unclear, Bartlett told DS News. Take the FHFA's "living will" act, which requires Fannie and Freddie to develop credible resolution plans, also known as "living wills." Bartlett says this requirement should protect both taxpayers and the mortgage market. He also wonders why it was not required long ago. "e GSEs have been in conservatorship for a decade, with little political will for a permanent structure. While long overdue, the fact that the new rule gives Fannie and Freddie two years to come up with resolution plans after a decade in conservatorship makes you wonder." A new refinance option offered by FHFA for low-income borrowers who missed out on the refi boom could prove advantageous for both borrowers and the mortgage market as rates go up and refinance volumes slow, Bartlett added. Another recent development, the senior preferred stock purchase agreements (PSPA) between the FHFA and the Treasury from January limited the GSEs' exposure to second and investor home loans, says Peter, who believes these limits are appropriate. He suggests that "the private sector is capable of handling the volume without a taxpayer guarantee." Under the leadership of Director Calabria, the GSEs have undertaken prudent reforms to limit their exposure to risky loans, Peter continued. "e PSPA limited the GSEs' exposure to 6% for risk-layered loans, which FHFA defined as those with down payments of less than 10%, credit scores of less than 680, and DTIs of greater than 45%." Cover Story By: Christina Hughes Babb "The mortgage industry should be especially mindful of all things involving racial equity. That will be the lens through which mortgage lending will be viewed." —Steve Bartlett, Senior Advisory Board Member, Treliant; President & CEO, Financial Services Roundtable (1999-2012), Representative to the U.S. Congress (1991-1993)

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