FHFA Proposes New Liquidity Rules for Fannie, Freddie

The Federal Housing Finance Agency today proposed new liquidity and funding requirements for Fannie Mae and Freddie Mac. The new requirements include a short-term, 30-day liquidity requirement—based on a cumulative net cash outflow analysis, plus an additional $10 billion cushion requirement that must be met by highly liquid assets, like Treasury securities—and an intermediate-term, 365-day liquidity requirement extending the short-term cumulative cash outflow analysis to a full year.

In addition, the proposed rule establishes two long-term funding requirements: first, that the ratio of long-term unsecured to less-liquid assets must be greater than 120%, and second that the ratio of the spread duration of unsecured debt to the spread duration of retained portfolio assets must be greater than 60%.

“FHFA believes that a robust Enterprise liquidity framework will improve market confidence in the Enterprises’ ability to fulfill their mission and provide countercyclical support to housing finance markets in times of stress, while further minimizing the likelihood that they will need further taxpayer support,” the agency said. “FHFA envisions that an appropriate framework would incent the Enterprises to build their liquidity portfolios in good times, so that it is available to be deployed as necessary in times of stress.”

The American Bankers Association is currently reviewing the proposal and is considering a comment letter to FHFA. Comments on the proposed requirements will be due 60 days after publication in the Federal Register.