MReport December 2020

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M REPORT | 63 SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T Protecting the GSEs FHFA's Final Rule for Fannie Mae and Freddie Mac released. T he Federal Housing Finance Agency (FHFA) released a final rule to the Federal Register for publication that establishes a new regulatory capital framework for Fannie Mae and Freddie Mac, also known as the Enterprises. The final rule changes the proposed rule published in the Federal Register on June 30 of this year. The June proposal was a re-proposal of the 2018 regulatory capital framework proposal, based on the Conservatorship Capital Framework that the FHFA imple - mented in 2017. The final rule works to fulfill Congress's Housing and Economic Recovery Act of 2008, which requires the FHFA to set in place "risk-based capital requirements" for Fannie Mae and Freddie Mac. The final rule is meant 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," according to a press release from the FHFA. "Fannie Mae and Freddie Mac have a mission to serve the American housing market dur - ing good times and bad," FHFA Director Mark Calabria stated in the press release. "After consid- ering all the comments on the proposed rule, and the Financial Stability Oversight Council's (FSOC) review of the second - ary mortgage market, FHFA is confident that the final rule puts Fannie Mae and Freddie Mac on a path toward a sound capital footing. Increased capital means that they can serve all Americans, especially low- and moderate- income families, throughout the economic cycle." Calabria also noted that the final rule is "another milestone necessary for responsibly ending the conservatorship." Fannie Mae CEO Hugh R. Frater said, "FHFA's capital rule for the housing GSEs is an important step in ensuring the housing finance system can serve the needs of homeowners, renters, and the broader mortgage market for generations to come. The new capital standards set the stage for a responsible end to the conserva - torship and a future recapitaliza- tion of Fannie Mae." This final rule has a similar structure and approach as the proposed rule published in June. As the proposed rule states, "an Enterprise must maintain tier 1 capital in excess of 4% to avoid restrictions on capital distributions and discretionary bonuses." Among other refinements in the final rule, the FHFA has made three especially notable changes to the risk-based capital requirements. These changes are as follows: • Increased capital relief for credit risk transfers (CRT) • Reduced capital requirements for single-family mortgage exposures subject to COVID-19 related forbearance • Increased the exposure level risk-weight floor for single-fam - ily and multifamily mortgage exposures to 20% The FHFA is also providing a data supplement to the expanded- data FHFA House Price Index (HPI) with the release of the final rule. According to the press release, "the augmented data series is provided in support of the final rule, which includes a countercy - clical adjustment to single-family mortgage exposures based on the deviation between the inflation- adjusted level of the index and an estimated long-run trend." The FHFA also stated that the final rule uses "the updated expanded- data FHFA HPI as the basis for the countercyclical adjustment."

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