FHFA Proposes New Capital Framework for Fannie Mae and Freddie Mac
FHFA and the Office of Federal Housing Enterprise Oversight (OFHEO) proposed a new regulatory capital framework for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac)—collectively known as the Enterprises. The proposed rule would make certain conforming amendments to definitions in the FHFA regulations for assessments and minimum capital. It would also remove the OFHEO Regulation on capital for the Enterprises. Comments must be received on or before August 31, 2020.
This proposed rule is a re-proposal of the regulatory capital framework set forth in the notice of proposed rulemaking published in the Federal Register on July 17, 2018. The 2018 proposal, which remains the foundation of this proposed rule, contemplated risk-based capital requirements based on a granular assessment of credit risk specific to different mortgage loan categories as well as two alternatives for an updated leverage ratio requirement. The proposed rule contemplates a number of key enhancements to the 2018 proposal, including:
- Simplifications and refinements of the grids and risk multipliers for the credit risk capital requirements for single-family mortgage exposures, including removal of the single-family risk multipliers for loan balance and the number of borrowers
- A countercyclical adjustment to the credit risk capital requirements for single-family mortgage exposures
- A prudential floor on the credit risk capital requirement for mortgage exposures
- Refinements to the capital treatment of credit risk transfers structures, including a minimum capital requirement on senior tranches of credit risk transfers retained by an Enterprise and an adjustment to reflect that credit risk transfers does not have the same loss-absorbing capacity as equity capital
- The addition of a credit risk capital requirement for Enterprise cross-holdings of mortgage-backed securities
- Risk-based capital requirements for a number of other exposures not explicitly addressed by the 2018 proposal
- Supplemental capital requirements based on the Basel framework's definitions of total capital, tier 1 capital, and CET1 capital
- Capital buffers that would subject an Enterprise to increasing limits on capital distributions and discretionary bonus payments to the extent that its regulatory capital falls below the prescribed buffer amounts
- A stability capital buffer tailored to the risk that an Enterprise's default or other financial distress could have on the liquidity, efficiency, competitiveness, and resiliency of national housing finance markets
- A revised method for determining operational risk capital requirements, as well as a higher floor
- A requirement that each Enterprise maintain internal models for determining its own estimates of risk-based capital requirements
The regulatory capital framework contemplated by the proposed rule would require each Enterprise to maintain total capital of not less than 8.0% of risk-weighted assets, adjusted total capital of not less than 8.0% of risk-weighted assets, tier 1 capital of not less than 6.0% of risk-weighted assets, and common equity tier 1 (CET1) capital of not less than 4.5% of the risk-weighted assets. Each Enterprise would be also required to satisfy the following leverage ratios—core capital of not less than 2.5% of adjusted total assets and tier 1 capital of not less than 2.5% of the adjusted total assets.
Related Link: Federal Register Notice
Comment Due Date: August 31, 2020
Keywords: Americas, US, Banking, Regulatory Capital, CET 1, Basel, Credit Risk, Market Risk, Operational Risk, Leverage Ratio, Fannie Mae, Fannie Mac, FHFA
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
FCA Extends Implementation Timeline for SM&CR Solo-Regulated FirmsRelated Articles
OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
EBA Proposes Standards to Support Secondary NPL Markets
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
EBA Issues Standards for Crowdfunding Service Providers Under ECSPR
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR
The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.
MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy
The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
EC Mandates ESAs to Propose Amendments to SFDR Technical Standards
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
EBA Examines Supervisory Practices, Issues Deposits Reporting Template
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),