If the new rule had been in effect at 3Q19, CRT would have reduced the GSEs’ capital requirement by $22.1 billion. On the other hand, CRT provisions under the 2018 version would have provided $41.3 billion.
According to former Fannie Mae CFO Tim Howard, the re-proposed capital requirements are almost 40 times the average of that indicated by stress tests conducted on the GSEs last year.
The move suggests the GSEs’ public offerings — estimated by some to be worth as much as $200 billion — may take place in the midst of the worst economic crisis since the Great Depression.
Borrowers now have the option of simply deferring any forborne payments to the end of their mortgage. In effect, this would work like an interest-free second mortgage, and would become due when the house is sold or the loan is refinanced.
KBW believes the Freddie announcement could improve valuations for mortgage servicing rights “as the market reduces its expectations for potential servicing advance costs.”
Since March, spreads between SOFR and the three-month LIBOR have widened to roughly 80 basis points. The five-year average, which the ARRC recommends as a “spread adjustment,” is only 27 bps.