The Office of Federal Housing Enterprise Oversight is proposing to correct its loss severity calculations for mortgage defaults, which could substantially increase Fannie Mae's and Freddie Mac's risk-based capital requirements.Under the current equations, the government-sponsored enterprises record profits, instead of losses, on foreclosures of government-guaranteed loans and loans with low loan-to-value ratios. These changes would have increased Fannie's RBC requirement by $7.5 billion to $9.8 billion in the fourth quarter of 2006 and Freddie's by $4.5 billion to $5.4 billion. Fannie exceeded its RBC requirements by $16.1 billion that quarter and Freddie exceeded it by $21.4 billion. If finalized, this rule would negate any benefits the two GSEs expect when OFHEO releases them from the requirement to maintain a 30% capital surplus, according to Federal Financial Analytics, a Washington consulting firm. The regulator is expected to roll back the capital surcharge when the GSEs return to timely financial reporting next year. There is a 90-day comment period on the proposal.
