The Federal Housing Finance Agency (FHFA) has unveiled a proposed rule that would modify the regulatory capital framework governing Fannie Mae and Freddie Mac. While the new rule does not alter the risk-based capital requirements for government-sponsored enterprises (GSEs), it does bring about several notable changes.
One of the most significant changes in the proposed rule is the reduction of the capital requirement for commingled UMBS securities from 20% to 5%, along with the related reduction in credit conversion factor from 100% to 50%. The FHFA has also proposed a 0.6 risk multiplier for multifamily mortgages that are supported by certain government subsidies, such as low-income housing tax credits. Additionally, the agency plans to develop a standardized approach for calculating counterparty risk in derivatives and cleared transactions.
While the FHFA’s proposed changes to the regulatory capital framework have been welcomed by some, they have been met with criticism from industry trade groups and lenders for their failure to modify risk-based capital requirements for Fannie Mae and Freddie Mac.
This proposed rule follows the FHFA’s February 2022 amendments to the regulatory capital framework. The amendments introduced a dynamic buffer and lowered the prudential floor on the risk weight of retained credit risk transfer exposure from 10% to 5%. The agency also eliminated the requirement for enterprises to apply an overall effectiveness adjustment to retained CRT exposures.
In July 2022, the GSEs introduced a 50 bps fee on UMBS Supers’ other enterprise’s capital, which received some criticism from industry experts.
Interested parties can provide comments on the latest proposed rule within 60 days of its publication in the Federal Register.