WASHINGTON—The Financial Stability Oversight Council (FSOC) met to discuss its activity-based review of the secondary mortgage market and acknowledged the government-sponsored enterprises' (GSEs) activities, if not mitigated, pose a risk to the financial system.
The Council warned that should the GSEs fail, access to capital for first-time homebuyers could be significantly reduced.
Federal Housing Finance Agency (FHFA) Director Dr. Mark Calabria serves on FSOC alongside NCUA Chairman Rodney Hood and leaders of other federal and state regulatory bodies.
“I commend the Council for its historic acknowledgement that the Enterprises' activities could pose risk to financial stability," said Calabria in a statement following the meeting. “(The) announcement is an important and necessary step to reform and protect the housing finance system so that the Enterprises can continue serving the market during crises. The next critical step will be finalizing the capital rule with the benefit of the Council's valuable recommendations."
Calabria had previously offered his support for FSOC's review stating, "As demonstrated by the 2008 financial crisis and again by COVID-19, Fannie Mae and Freddie Mac must be well capitalized in order to support the mortgage market during a stressed environment."
Capital Recommendations
In its review, NAFCU noted the Council recommended the GSEs adopt capital requirements within the minimum capital levels outlined in the FHFA's proposed rule, which would require the GSEs to maintain the following risk-based capital levels:
- Total capital not less than 8% of risk-weighted assets, determined as further described in the rule
- Adjusted total capital not less than 8% of risk-weighted assets
- Tier 1 capital not less than 6% of risk-weighted assets
- Common equity tier 1 (CET1) capital not less than 4.5% of risk-weighted assets
The rule also stipulates that Fannie Mae and Freddie Mac must cumulatively hold over $240 billion in capital, which would reduce their leverage from its current 250-to-1 to 25-to-1.
Additionally, FSOC indicated that if the FHFA fail to mitigate risks, FSOC may make additional actions, which could potentially include designating the GSEs as Systemically Important Financial Institutions (SIFIs).