FHFA Finalizes Changes to Regulatory Capital Framework for Fannie, Freddie

The Federal Housing Finance Agency today finalized 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 were adopted mostly as proposed, and will take effect 60 days after publication in the Federal Register.

Specifically, FHFA replaces 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; replaces 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 removes the requirement that an enterprise must apply an overall effectiveness adjustment to its retained CRT exposures in accordance with the ERCF’s securitization framework.

The final rule also implements technical corrections to provisions of the enterprise regulatory capital framework that were published in December 2020.