FHFA finalizes GSE capital framework
On November 18, the FHFA announced a final rule, which establishes a new regulatory capital framework for Fannie Mae and Freddie Mac (GSEs) to ensure safety and soundness. The final rule is similar to the proposed rule published earlier this year (covered by InfoBytes here), and it generally makes the following notable modifications in response to comments: (i) increases the dollar amount of capital relief for the GSEs’ credit risk transfers; (ii) reduces the credit risk capital requirements for single-family mortgage exposure subject to Covid-19 related forbearance; and (iii) increases the exposure level risk-weight floor for single-family and multifamily mortgage exposures to 20 percent.
According to a fact sheet released in conjunction with the announcement, the final rule preserves key enhancements contained within the proposed rule. These include, among other things, (i) ensuring each GSE “maintains high-quality regulatory capital by including a set of supplemental capital requirements based on the U.S. banking framework’s definitions of [common equity tier 1], tier 1, and total capital”; (ii) strengthening the quality of regulatory capital; (iii) including backstop leverage requirements; and (iv) addressing pro-cyclicality through measures such as capital buffers and single-family mortgage exposure countercyclical adjustments.
The final rule takes effect 60 days after publication in the Federal Register.