WASHINGTON–The Federal Housing Finance Agency (FHFA) has issued its final rule establishing a new regulatory capital framework for Fannie Mae and Freddie Mac, both of which continue to operate under government conservatorship.
NAFCU welcomed the rule, but called it just one step in ongoing reform.
According to the FHFA, the final rule makes certain changes to the proposed rule published in the Federal Register on June 30, 2020. That proposed rule was a re-proposal of the regulatory capital framework proposed in 2018 (2018 proposal).
The FHFA noted the 2018 proposal was based on the Conservatorship Capital Framework that had been implemented by FHFA in 2017. The FHFA said the final rule fulfills Congress's Housing and Economic Recovery Act of 2008 mandate that FHFA establish risk-based capital requirements for the Enterprises.
FHFA reported it received and reviewed 128 comments, carefully assessed the public input, and then revised the proposed rule accordingly after hosting two webinars and listening sessions.
The final rule is intended to ensure the safety and soundness of the Enterprises by increasing the quantity and quality of the Enterprises' regulatory capital and reducing the pro-cyclicality of the aggregate capital requirements, according to the FHFA.
‘Path to Solid Footing’
“Fannie Mae and Freddie Mac have a mission to serve the American housing market during good times and bad. After considering all the comments on the proposed rule, and the Financial Stability Oversight Council’s review of the secondary mortgage market, FHFA is confident that the final rule puts Fannie Mae and Freddie Mac on a path toward a sound capital footing. Increased capital means that they can serve all Americans, especially low- and moderate-income families, throughout the economic cycle," said FHFA Director Mark Calabria in a statement. “The final rule is another milestone necessary for responsibly ending the conservatorships."
The FHFA said the final rule is substantively similar to the proposed rule in terms of overall structure and approach. As required by the proposed rule, an Enterprise must maintain tier 1 capital in excess of 4.0 percent to avoid restrictions on capital distributions and discretionary bonuses. FHFA has made three notable changes to the risk-based capital requirements in addition to a number of other refinements.
The notable changes include:
- Increased capital relief for credit risk transfers (CRT)
- Reduced capital requirements for single-family mortgage exposures subject to COVID-19 related forbearance
- Increased the exposure level risk-weight floor for single-family and multifamily mortgage exposures to 20%.
NAFCU Response
In response, NAFCU Director of Regulatory Affairs Ann Kossachev said, “Director Calabria and the FHFA’s commitment to building a robust regulatory capital framework for the GSEs is an essential part of reforming our nation’s housing finance system. But this is just one step in comprehensive housing finance reform. NAFCU looks forward to working with Congress, the Administration, and the FHFA as credit unions play an important role in this space.”