The Federal Housing Finance Agency (FHFA) has reached
another milestone as it tries to resolve the 12-year conservatorship of the
GSEs. On Wednesday it released a new regulatory capital framework for Fannie
Mae and Freddie Mac. The final rule, a revision of a proposal made in 2018,
reflects the 128 comments made on the 2018 proposal and well as other outreach
to stakeholders.

says the final rule fulfills Congress’s mandate
in Housing and Economic Recovery Act of 2008 that FHFA establish risk-based
capital requirements for the GSEs. It is intended to ensure their safety and
soundness by increasing the quantity and quality of their regulatory capital
and reducing the pro-cyclicality of the aggregate capital requirements.

The final rule is substantively like
the proposed rule in terms of overall structure and approach which required
each GSE to must maintain tier 1 capital in excess of 4.0 percent to avoid
restrictions on capital distributions and discretionary bonuses. FHFA said it made
three notable changes to the risk-based capital requirements in the final rule,
as well as several other refinements. The notable changes include:

  • Increased capital relief for credit risk transfers
  • Reduced capital requirements for single-family mortgage
    exposures subject to COVID-19 related forbearance; and
  • Increased the exposure level risk-weight floor for
    single-family and multifamily mortgage exposures to 20 percent.

These enhancements will ensure the
GSEs safety and soundness and their ability to fulfill its statutory mission
across the economic cycle, particularly during periods of financial stress.

FHFA Director Mark Calabria said, “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 (FSOC’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.”

To support the rule, FHFA is also releasing
supplementary data for its House Price Index (HPI), expanding it back to the
first quarter of 1975. It is currently benchmarked to January 1991. The augmented
data series will include a countercyclical adjustment to single-family mortgage
exposures based on the deviation between the inflation adjusted level of the
index and an estimated long-run trend. The final rule utilizes the updated
expanded-data FHFA HPI as the basis for the countercyclical adjustment.

By Jann Swanson , dated 2020-11-19 17:24:43

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Courtesy of Mortgage News Daily

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