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Financial Services Law Insights and Observations

FHFA finalizes GSE resolution plan requirements

Agency Rule-Making & Guidance FHFA Mortgages Fannie Mae Freddie Mac GSEs HERA Living Wills

Agency Rule-Making & Guidance

On May 3, FHFA published a final rule requiring Fannie Mae and Freddie Mac (GSEs) to develop “credible resolution plans” (also known as “living wills”) to facilitate their rapid and orderly resolution in the event FHFA is appointed receiver per the Housing and Economic Recovery Act of 2008. Similar to the living wills that other large financial institutions are required to develop under resolution planning rules issued by the Federal Reserve Board and the FDIC, the resolution plans will create a roadmap for preserving business continuity should the GSEs fail again. FHFA Director Mark Calabria stressed that the rule “helps create a stronger, more resilient housing finance system by protecting taxpayers and the mortgage market from harm.”

As previously covered by InfoBytes, last December FHFA published a notice of proposed rulemaking seeking to, among other things, implement liquidity and funding requirements for the GSEs. According to FHFA’s fact sheet, public input was incorporated into the final rule’s key components, which include the following requirements:

  • The resolution planning process will start with the identification of core business lines.
  • Initial resolution plans must be submitted “two years after the effective date of the final rule” with “subsequent resolution plans to be submitted every two years thereafter.”
  • Resolution plans must include the following required and prohibited assumptions: (i) an assumption of severely adverse economic conditions; (ii) a prohibition on assuming that the U.S. government will provide or continue to provide “extraordinary support”; and (iii) the reflection of statutory provisions stating “that obligations and securities of the [GSE] issued pursuant to its charter are not guaranteed by the [U.S.] and do not constitute a debt or obligation of the [U.S.].”
  • Resolution plans must identify “potential material weaknesses or impediments to rapid and orderly resolution as conceived in its plan,” along with any actions or steps to address the identified weaknesses or impediments.
  • Resolution plans must ensure confidentiality of certain information but also make portions available to the public.
  • Resolution plans will be reviewed by FHFA to identity whether additional information is needed, as well as any deficiencies or “shortcomings” (defined as supervisory concerns that do not rise to the level of “deficiencies”). Feedback will be provided along with an opportunity for resubmission. 

Additionally, FHFA added a 12-month notification requirement to the final rule should the agency decide to alter the resolution plan submission date. FHFA also reserved the authority to further refine submission requirements. The final rule is effective 60 days after publication in the Federal Register.

 

 

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