FHFA Proposes Rule on Conservatorship and Receivership Operations

The ""Federal Housing Finance Agency"":http://www.fhfa.gov/ (FHFA)has sent a ""proposed rule"":http://www.fhfa.gov/webfiles/15888/ConservatorshipReceivership.pdf to the _Federal Register_ to establish a framework for conservatorship and receivership operations.

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The proposed rule seeks to protect the public interest in the transparency of conservatorship and receivership operations for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, pursuant to the Housing and Economic Recovery Act of 2008. FHFA said the proposal parallels many of the provisions in the Federal Deposit Insurance Corporation rules for conservatorships and receiverships.

""This regulation is designed to provide clarity to the regulated entities, creditors, and the markets,"" said Edward J. DeMarco, FHFA acting director. ""Publication of this rule for comment has no impact on the current conservatorship operations and is not a reflection of the condition of Fannie Mae, Freddie Mac, or the Federal Home Loan Banks.""

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Several key issues are addressed within the proposed rule, including the status and priority of claims, the relationships among various classes of creditors and equity-holders, and the priorities for contract parties and other claimants under conservatorships or receiverships.

The proposed rule clarifies that all claims arising from an equity interest in a regulated entity in receivership would be given the same treatment as the interest of shareholder. It also clarifies that claims by shareholders would receive the lowest priority in receivership, behind administrative expenses of the receiver, general liabilities of the regulated entity, and liabilities subordinated to those of general creditors.

Under the proposed rule, the ability of a regulated entity to make capital distributions during a conservatorship would be restricted. In addition, the rule explains that the powers of the conservator or receiver include continuing the missions of a regulated entity and ensuring that the operations of the regulated entity foster liquid, efficient, competitive, and resilient national housing finance markets.

Finally, the proposed rule clarifies the status of claims against the conservator or receiver for breach of contract.

FHFA said it invites comments on all aspects of the proposed regulation. These comments, which are due 60 days from the date of publication in the _Federal Register_, will be taken into consideration before a final regulation is issued.