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FHFA Proposes New Capital Framework For GSEs

The Federal Housing Finance Agency (FHFA) announced a proposed rulemaking that established a new regulatory capital framework for Fannie Mae and Freddie Mac. 

The proposed rule is a re-proposal of the notice of proposed rulemaking published in July 2018. Comments will be due 60 days after the notice is published in the Federal Register. 

The FHFA states the proposal remains the foundation of the re-proposal. The enhancements in the new proposal preserve the mortgage risk-sensitive framework of the 2018 proposal while increasing the quantity and quality of the GSEs. 

According to the FHFA’s proposal, the risk-based capital requirement would include requirements for credit risk, market risk, and operational risk. 

“The leverage ratio requirements would provide a credible backstop to the risk-based capital requirements. An Enterprise’s capital distributions and employment-based discretionary bonus payments would be subject to limits if the Enterprise does not maintain regulatory capital in excess of the prescribed capital buffer amounts,” the document states. 

The FHFA added that this is a “critical step toward responsibly ending the conservatorships.”

"This national health crisis has affirmed the importance of the Enterprises' mission to serve the American housing market during good times and bad. When credit dries up, low- and moderate-income households are hurt most. We must chart a course for the Enterprises toward a sound capital footing so they can help all Americans in times of stress," said FHFA Director Dr. Mark A. Calabria. "More capital means a stronger foundation on which to weather crises. The time to act is now."

Fannie Mae CEO Hugh R. Frater said the proposed regulatory capital rule marks “the start of an important new chapter” for Fannie Mae. 

“These next steps toward our recapitalization and release from conservatorship are more than 10 years in the making, and we thank Director Calabria for his leadership during this process,” Frater said. 

“The reproposal of this critical rule marks another important milestone in our path out of conservatorship. I thank Director Calabria for his leadership in moving this rule forward,” said David Brickman, CEO of Freddie Mac. “As Freddie Mac takes unprecedented steps to assist homeowners and renters adversely affected by COVID-19, we remain focused on preparing for our responsible exit from conservatorship.”

Steven Mnuchin, Secretary for the U.S. Department of the Treasury, said he applauds Calabria and the FHFA for their work on this issue. He added establishing regulatory requirements for Fannie Mae and Freddie Mac is a "an important step toward bringing the conservatorships to and end."

"Appropriate capitalization of the GSEs will be critical to protecting taxpayers, fostering market discipline, promoting stability in the housing finance system, and ensuring durable consumer access to mortgage credit," Mnuchin said.

About Author: Mike Albanese

Mike Albanese is a reporter for DS News and MReport. He is a University of Alabama graduate with a degree in journalism and a minor in communications. He has worked for publications—both print and online—covering numerous beats. A Connecticut native, Albanese currently resides in Lewisville.

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