FHFA Issues Proposed Rulemaking Notice on GSE Resolution Plans

The Federal Housing Finance Agency on Dec. 23 issued a Notice of Proposed Rulemaking that would require Fannie Mae and Freddie Mac to develop credible resolution plans, also known as living wills.

These resolution plans would facilitate a rapid and orderly resolution should FHFA have to be appointed their receiver under the Housing and Economic Recovery Act of 2008.

Under the proposed rule, Fannie Mae and Freddie Mac must demonstrate how core or important business lines would be maintained to ensure continued support for mortgage finance and stabilize the housing finance system, without extraordinary government support to prevent an Enterprise from being placed in receivership, indemnify investors against losses or fund the resolution of an Enterprise.

FHFA said the proposed rule is similar to those issued by the Federal Reserve Board and the Federal Deposit Insurance Corporation under the Dodd–Frank Act, which requires many large financial institutions to submit living wills. It said the Treasury’s Department’s 2019 Housing Reform Plan highlighted the need for a credible resolution framework for the GSEs, and the Financial Stability Oversight Council endorsed Enterprise living wills in the early fall of 2020.

FHFA Director Mark Calabria said the proposed rule is an “important step toward a stronger housing finance system.”

“Requiring the Enterprises to develop living wills, helps FHFA fulfill its responsibility to ensure that the failure of an Enterprise would harm neither taxpayers nor the mortgage market,” Calabria said. “The proposed rule gives FHFA a tool that supplements its existing statutory authorities to restructure a failed Enterprise so that government does not have to put the Enterprises into conservatorship again.”

FHFA invites comments on the proposed rule within 60 days of its publication in the Federal Register.