FHFA Proposes New Capital Requirements for Fannie Mae and Freddie Mac
By Elizabeth Stewart @ Real Estate Daily
June 15, 2018

The FHFA announced a new rule to implement capital requirements for Fannie Mae and Freddie Mac. The rule would not go into effect until the government-sponsored enterprises exit conservatorship, which remains uncertain.

Fannie and Freddie have been under conservatorship since 2008. The FHFA placed the GSEs into conservatorship after the housing bubble and suspended regulatory capital requirements. Now, the FHFA is proposing a new plan for risk-based capital requirements and minimum leverage capital requirements.

Key Takeaways

  • The FHFA proposed new capital requirements for Fannie Mae and Freddie Mac
  • The proposal includes a new framework for risk-based capital requirements and minimum leverage capital requirements
  • The proposed plan would not go into effect until Fannie and Freddie exit conservatorship, which remains uncertain

Excerpt

The Federal Housing Finance Agency announced Tuesday a proposed rule to implement new capital requirements for Fannie Mae and Freddie Mac.

These new capital requirements for the two companies would remain suspended while they remain in conservatorship, however, the FHFA explained it is appropriate to communicate the agency’s views about capital adequacy for the GSEs in the future.

The FHFA is also seeking public comment on its proposal at this time and says it wants to allow market participants and all stakeholders to comment on the proposed capital requirements.

“We think it is important for FHFA, as the prudential regulator for Fannie Mae and Freddie Mac, to articulate our views on capital requirements and to start a healthy discussion about the amount of capital the Enterprises should have to appropriately shield taxpayers from assistance,” said FHFA Director Melvin Watt.

“In addition, feedback on this proposed rule will inform FHFA’s views as conservator in making possible refinements to our assumptions about capital as we evaluate the Enterprises’ business decisions during conservatorship,” Watt continued.

The FHFA explained that, rather than propose a flat percentage based on the GSEs assets for minimum capital requirements, it is looking at a more multi-tiered risk-based requirement. However, it is also proposing two alternatives to minimum leverage requirements.

The first alternative, the “2.5% alternative,” would require the companies to hold equal to 2.5% of total assets. The second alternative, the “bifurcated alternative,” would require the GSEs to hold capital equal to 1.5% of trust assets and 4% of non-trust assets.

The proposed rule will be available for comment on the FHFA’s website for 60 days after being published to the Federal Register.

View the original article at Housing Wire