FHFA Issues Proposed Rulemaking to Amend GSE Regulatory Capital Framework
It’s been a busy week for the Federal Housing Finance Agency. On Tuesday, FHFA and the Treasury Department suspended certain provisions added to the Preferred Stock Purchase Agreements with Fannie Mae and Freddie Mac. On Wednesday, FHFA announced a notice of proposed rulemaking to amend the Enterprise Regulatory Capital Framework for Fannie Mae and Freddie Mac.
FHFA said the proposed amendments would refine the prescribed leverage buffer amount and capital treatment of credit risk transfers to better reflect the risks inherent in the Enterprises’ business models and to encourage the distribution of credit risk from the Enterprises to private investors.
Specifically, the Notice of Proposed Rulemaking would:
- Replace the fixed PLBA equal to 1.5 percent of an Enterprise’s adjusted total assets with a dynamic PLBA equal to 50 percent of the Enterprise’s stability capital buffer as calculated in accordance with 12 CFR 1240.400;
- Replace 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
- Remove the requirement that an Enterprise must apply an overall effectiveness adjustment to its retained CRT exposures in accordance with the ERCF’s securitization framework in 12 CFR 1240.44(f) and (i).
“The amendments proposed today will allow the Enterprises to support the housing market throughout the economic cycle in a safe and sound manner,” said Acting Director Sandra L. Thompson. “The proposed requirements provide the Enterprises with the necessary incentives to support sustainable lending initiatives by transferring a significant amount of credit risk away from the taxpayers to private investors that are better positioned to take this risk. I look forward to receiving robust feedback on the proposed amendments.”
FHFA invited comments on the proposed rule within 60 days of its publication in the Federal Register.
On Tuesday, FHFA suspended certain provisions added to the PSPAs with Fannie Mae and Freddie Mac in January.
The suspended provisions include limits on the Enterprises’ cash windows (loans acquired for cash consideration), multifamily lending, loans with higher risk characteristics and second homes and investment properties. FHFA said Fannie Mae and Freddie Mac will continue to build capital under the continuing provisions of the PSPAs. FHFA also continues to direct the GSEs to operate in a “safe and sound manner consistent with their statutory mission, and to foster resilient housing finance markets given prevailing housing market conditions,” which include elevated demand relative to available inventory.
“This suspension will provide FHFA time to review the extent to which these requirements are redundant or inconsistent with existing FHFA standards, policies, and directives that mandate sustainable lending standards,” Thompson said.
In a statement, Mortgage Bankers Association President & CEO Robert Broeksmit, CMB, commended FHFA and Treasury.
“The suspensions will eliminate several market and pricing disruptions caused by these caps that were harming lenders and borrowers alike and pave the way to restore appropriate regulatory authority to the FHFA,” Broeksmit said. “MBA looks forward to working with Treasury, FHFA and all other stakeholders on these and other ways to protect consumers and strengthen the mortgage market.”
