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Financial Services Law Insights and Observations

FHFA orders stress tests for Fannie and Freddie

Federal Issues FHFA Fannie Mae Freddie Mac GSEs Mortgages Stress Test Dodd-Frank EGRRCPA

Federal Issues

On March 16, FHFA published orders applicable March 10 for Fannie Mae and Freddie Mac (GSEs) with respect to stress test reporting as of December 31, 2021, under Dodd-Frank as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act. Under Dodd-Frank, certain federally regulated financial companies with total consolidated assets of more than $250 billion are required to conduct periodic stress tests to determine whether the companies have the capital necessary to absorb losses as a result of severely adverse economic conditions. The orders are accompanied by Summary Instructions and Guidance, which include stress test scenarios and revised templates (baseline, severely adverse, and variables and assumptions) for regulated companies to use when reporting the results of the stress tests (orders and instructions are available here). According to the Summary Instructions and Guidance, the GSEs have until May 20 to submit baseline and severely adverse results to FHFA and the Federal Reserve Board, and must publicly disclose a summary of severely adverse results between August 1 and 15.