FHFA Re-Proposes Regulatory Capital Framework Changes for Fannie, Freddie

In a highly anticipated move today, the Federal Housing Finance Agency re-proposed a 2018 proposal to establish a new regulatory capital framework for Fannie Mae and Freddie Mac, charting a clear path for the GSEs to exit conservatorship. The proposed framework is based around several core goals, including addressing procyclicality, facilitating the GSEs’ regulatory capital planning, and increasing the quantity and quality of capital held by the enterprises—a longstanding priority for ABA.

“ABA has long advocated that Fannie Mae and Freddie Mac require appropriate capitalization to reduce the risk to U.S. taxpayers, as well as a proper regulatory structure to allow for the efficient functioning of mortgage markets in all conditions,” said American Bankers Association President and CEO Rob Nichols. “Today’s proposal sets forth a necessary framework to establish appropriate capital levels that could lead to a detailed and thoughtful exit strategy from conservatorship for the GSEs.”

Under the new framework, the GSEs will be required to hold a combined $243 billion in capital—up significantly from the $45 billion they currently hold. They will also be required to satisfy several capital and leverage ratio requirements, similar to those adhered to by banks. ABA is currently reviewing the proposal and will provide feedback to FHFA. Comments will be due 60 days after publication in the Federal Register.