FHFA proposes new risk-based capital requirements for Fannie, Freddie

Interested parties have been invited to submit to comments on the proposal

By Francis Monfort

13 Jun 2018

The Federal Housing Finance Agency (FHFA) has issued a proposal rule under which a new framework for risk-based capital requirements will be implemented for Fannie Mae and Freddie Mac.

The proposed rule would also revise minimum leverage capital requirement for the government-sponsored enterprises. FHFA said it is seeking comments on its proposal from interested parties.

Although the proposed rule would not apply to the GSEs while they remain in conservatorship, FHFA said it issued the rule to communicate its views as a financial regulator about capital adequacy and to allow market participants and all stakeholders to comment on the proposed capital requirements. FHFA had suspended regulatory capital requirements after placing the GSEs into conservatorships in September 2008.

"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," FHFA Director Melvin Watt said. "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."

FHFA’s proposal builds upon its work with the GSEs to come up with a Conservatorship Capital Framework (CCF). While the GSEs use the CCF to make their regular business decisions, FHFA uses it in its role as conservator to assess guarantee fees, activities, and operations and to guard against the GSEs making competitive decisions that could adversely impact safety and soundness.