FHFA Issues Final Rule Amending GSE Regulatory Capital Framework
The Federal Housing Finance Agency on Feb. 25 published a final rule that amends the Enterprise Regulatory Capital Framework by refining the prescribed leverage buffer amount and risk-based capital treatment of retained credit risk transfer exposures for Fannie Mae and Freddie Mac.
Specifically, the final rule:
- Replaces the fixed leverage buffer equal to 1.5 percent of an Enterprise’s adjusted total assets with a dynamic leverage buffer equal to 50 percent of the Enterprise’s stability capital buffer;
- Replaces the prudential floor of 10 percent on the risk weight assigned to any retained CRT exposure with a prudential floor of 5 percent on the risk weight assigned to any retained CRT exposure; and
- Removes the requirement that an Enterprise must apply an overall effectiveness adjustment to its retained CRT exposures.
“The amendments finalized today reflect the feedback FHFA received last year and advance FHFA’s mission of ensuring the Enterprises are able to support the housing market throughout the economic cycle,” said Acting Director Sandra L. Thompson. “The final rule provides the Enterprises with the necessary incentives to transfer credit risk to private investors, which will help protect taxpayers from the risks posed by the Enterprises and will support the Enterprises as they strive to provide equitable and sustainable access to mortgage credit.”
The Mortgage Bankers Association largely supports the proposed amendments and recommends various adjustments to the framework that would bolster the GSEs’ ability to broaden access to credit without sacrificing safety and soundness. MBA said it plans to further analyze the final rule over the coming weeks and will continue to advocate that FHFA and the Department of the Treasury remove a problematic provision from the Senior Preferred Stock Purchase Agreements that requires the GSEs to adhere to an older version of the capital framework – even if revised – thereby negating the positive effects of this revised framework.
The final rule also makes technical corrections to various provisions of the ERCF that was published on December 17, 2020. The effective date for the ERCF amendments and technical corrections in this final rule will be 60 days after the day of publication in the Federal Register.