Today, the Federal Housing Finance Agency (FHFA) announced that it is seeking comment on a notice of proposed rulemaking that would amend the Enterprise Regulatory Capital Framework (ERCF) for Fannie Mae and Freddie Mac (the Enterprises).
The proposed amendments would refine the prescribed leverage buffer amount (PLBA) and the capital treatment of credit risk transfers (CRT) 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 proposed rule 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 invites comments on the proposed rule within 60 days of its publication in the Federal Register. Comments on the proposed rule should be submitted electronically or via mail to the Federal Housing Finance Agency, Division of Resolution, 400 7th Street, S.W., 8th floor, Washington, D.C., 20219.
Notice of Proposed Rulemaking