CREFC Responds to the FHFA’s Proposed Revisions to the Enterprise Regulatory Capital Framework

November 29, 2021

On November 23, CREFC submitted its response to the Federal Housing Finance Agency’s (FHFA’s) proposed revisions to the Enterprise Regulatory Capital (ERC) Framework for Fannie Mae and Freddie Mac, the Government Sponsored Enterprises (GSEs). The proposed revisions were the result of a change in leadership at FHFA after President Biden fired former FHFA Director Mark Calabria and replaced him with Acting Director Sandra Thompson.

As detailed below, the proposed revisions address some of the key points raised in CREFC’s response to the Enterprise capital framework proposed and finalized in 2020 under Calabria.

CREFC and its members were particularly pleased to see the following proposed changes, which also were raised in our previous letter:

  • Removal of the overall effectiveness adjustment to an Enterprise’s retained Credit Risk Transfer (CRT) exposures;
  • Replacement of the prudential floor of 10% with a prudential floor of 5% on the risk weight assigned to any CRT exposure retained by an Enterprise. This change would reduce GSE capital burdens and promote the use of CRTs to share risk with the private sector; and
  • The reduction of the Enterprises’ Prescribed Leverage Buffer Amount (PLBA), which is the GSE’s binding capital requirement. A lower PLBA better aligns the capital requirements to the amount of risk and incentivizes of CRT activity.
In addition to supporting the changes above, CREFC’s comments focused on the need to modify current multifamily capital requirements so that they more appropriately reflect the actual risk of that sector:
  • CREFC believes that the risk weights for multifamily exposure should be adjusted downward relative to single-family, given the multifamily sector’s strong historical performance and conservative underwriting over the past decade plus.
  • FHFA applies a countercyclical adjustment to single-family exposure. Given the balloon risk at maturity in multifamily loans, and therefore relatively high level of exposure for the life of the loan, FHFA should also incorporate a countercyclical adjustment for multifamily. In calculating this adjustment, CREFC would recommend using readily available data from the National Council of Real Estate Investment Fiduciaries (NCREIF), which has been producing a property-level return index – NCREIF Property Index (NPI) – since 1978.
CREFC also requested that FHFA release additional information regarding the data and assumptions underlying the proposed revisions and provide further opportunity for public comments based on that information.

The proposed revisions will likely be finalized in the next year, though the actual impact on GSE capital requirements will depend on how quickly FHFA will require the GSEs to build capital and the status of the conservatorship.

Please contact Sairah Burki or David McCarthy with any questions.



Lisa Pendergast
Executive Director

Raj Aidasani
Senior Director, Research

Justin Ailes
Managing Director, Government Relations

Sairah Burki
Managing Director, Regulatory Affairs

David McCarthy
Managing Director, Head of Policy

Kathleen Olin
Managing Director, Industry Initiatives

Christina Perez
Manager, Political and Government Relations
The proposed revisions were the result of a change in leadership at FHFA after President Biden fired former FHFA Director Mark Calabria and replaced him with Acting Director Sandra Thompson.
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2021 CRE Finance Council. All rights reserved.

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