FHFA issues model risk management guidance

Agency Rule-Making & Guidance FHFA FHLB Fannie Mae Freddie Mac GSEs Risk Management

On December 21, FHFA issued guidance to Freddie Mac, Fannie Mae, the Federal Home Loan Banks (FHLBanks), and the Office of Finance on its model risk management framework. According to the bulletin, the purpose of the guidance—formatted as Frequently Asked Questions—“is to provide supplemental guidelines that will address some of the gaps in [FHFA’s 2013 Model Risk Management guidance] prompted by changes in model-related technologies and questions generated from the expanded use of complex models by the FHLBanks.” “The supplemental guidance also addresses model documentation, the communication of model limitations, model performance tracking, on-top adjustments, challenger models, model consistency, and internal stress testing.”