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Financial Services Law Insights and Observations

FHFA seeks to implement minimum GSE liquidity and funding requirements

Federal Issues FHFA Mortgages GSE Fannie Mae Freddie Mac

Federal Issues

On December 17, the FHFA announced a notice of proposed rulemaking (NPRM) regarding liquidity and funding requirements for Fannie Mae and Freddie Mac (GSEs). The NPRM seeks to, among other things, implement two cash-flow based requirements and two long-term liquidity and funding requirements. These new requirements include (i) a short-term, 30-day liquidity requirement—based on a cumulative net cash outflow analysis plus requiring an additional $10 billion cushion of highly liquid assets; (ii) a 365-day liquidity requirement “extending the short-term cumulative cash outflow analysis to a full year”; (iii) a requirement that the “ratio of long-term unsecured to less-liquid assets must be greater than 120 percent”; and (iv) a requirement that the “ratio of the spread duration of unsecured debt to the spread duration of retained portfolio assets must be greater than 60 percent.” FHFA notes that the NPRM is intended to help ensure the GSEs “have enough liquid assets to continue supporting the mortgage market during times of severe stress.” The NPRM also supports FHFA oversight of GSE “prudential management, including compliance with standards pertaining to ‘adequacy and maintenance of liquidity and reserves.’” Comments on the NPRM are due 60 days after publication in the Federal Register.

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