FHFA Proposes Changes to Regulatory Capital Framework for Fannie, Freddie

The Federal Housing Finance Agency proposed changes to the prescribed leverage buffer amount and the capital treatment of risk transfers under enterprise regulatory capital framework for Fannie Mae and Freddie Mac. The changes are intended “to better reflect the risks inherent in the Enterprises’ business models and to encourage the distribution of credit risk from the Enterprises to private investors,” FHFA said.

Specifically, FHFA is proposing to replace the fixed PLBA equal to 1.5% of an enterprise’s adjusted total assets with a dynamic PLBA equal to 50% of the enterprise’s stability capital buffer; replace the prudential floor of 10% on the risk weight assigned to any retained CRT exposure with a prudential floor of 5% on the risk weight assigned to any retained CRT exposure; and remove the requirement that an enterprise must apply an overall effectiveness adjustment to its retained CRT exposures in accordance with the ERCF’s securitization framework. Comments on the proposed changes will be due 60 days after publication in the Federal Register.