The Federal Housing Finance Agency today issued a proposed rule that would create a new framework for risk-based capital requirements for Fannie Mae and Freddie Mac to ensure that the GSEs could cover losses and continue operations in the event of stress. The framework would use a series of approaches to produce tailored capital requirements based on different types of mortgage loans and guarantees, and would include components for market risk, operational risk and a “going-concern” buffer.
In addition, FHFA put forth two alternative leverage ratio proposals. Under the first alternative, the GSEs would be required to hold capital equal to 2.5 percent of total assets and off-balance sheet guarantees, and hold a minimum amount of risk-blind capital for assets and guarantees. Under the second approach, the GSEs would be required to hold capital equal to 1.5 percent of trust assets and 4 percent of non-trust assets.
Comments on the proposal are due 60 days after publication in the Federal Register. ABA is carefully reviewing the proposal and will submit comments. FHFA has also scheduled a webinar on the proposed rule on June 19 at 1:30 p.m. EDT.