The Federal Housing Finance Agency (FHFA) today sent a final rule to the Federal Register that establishes a new regulatory capital framework for Fannie Mae and Freddie Mac (the Enterprises).
In a press release, FHFA said that the "final rule is intended to ensure the safety and soundness of the Enterprises by increasing the quantity and quality of the Enterprises' regulatory capital and reducing the pro-cyclicality of the aggregate capital requirements."
“The final rule is another milestone necessary for responsibly ending the conservatorships (of Fannie Mae and Freddie Mac)," said FHFA Director Mark Calabria.
The final rule requires the Enterprises to maintain tier 1 capital (defined as the core measure of a bank's financial strength from a regulator's point of view) in excess of 4% to avoid restrictions on capital distributions and discretionary bonuses. FHFA has made three notable changes to the risk-based capital requirements in addition to a number of other refinements.
The notable changes include:
- Increased capital relief for credit risk transfers (CRT);
- Reduced capital requirements for single-family mortgage exposures subject to COVID-19 related forbearance; and
- Increased the exposure level risk-weight floor for single-family and multifamily mortgage exposures to 20 percent.