FHFA Proposes Capital Planning Rule for Enterprises

December 20, 2021

On December 16, the Federal Housing Finance Agency (FHFA) issued a proposed rule that would require Fannie Mae and Freddie Mac (the Enterprises) to submit annual capital plans to FHFA. “Today’s action is part of FHFA’s commitment to safety and soundness and protecting the housing finance system throughout the economic cycle,” said Acting Director Sandra Thompson.

The proposed rule will help ensure that the Enterprises have robust systems and processes in place to monitor and maintain proper levels of capital. Adhering to a framework similar to other regulatory capital planning frameworks will better position the Enterprises, and the mortgage market, to withstand stressful economic environments.
Comments are due 60 days following publication in the Federal Register.

The proposed rule mandates that the Enterprises’ capital plans include:
  • An assessment of the expected sources and uses of capital over the planning horizon;
  • Estimates of projected revenues, expenses, losses, reserves, and pro forma capital levels under a range of the Enterprise’s internal scenarios, as well as under FHFA’s scenarios;
  • A description of all planned capital actions over the planning horizon;
  • A discussion of how the Enterprise will, under expected and stressful conditions, maintain capital commensurate with the business risks and continue to serve the housing market; and
  • A discussion of any expected changes to the Enterprise’s business plan that are likely to have a material impact on the Enterprise’s capital adequacy or liquidity.
The proposed rule also incorporates the determination of the stress capital buffer from the final Enterprise Regulatory Capital Framework (ERCF) into the capital planning process.

The planning horizon would be defined as at least nine consecutive quarters for the FHFA scenarios and at least five years for the internal scenarios, consistent with the Enterprises’ corporate forecasts. FHFA’s proposal differs from the banking framework, which has a nine-quarter horizon for both the regulator’s scenarios and bank’s internal scenarios. According to FHFA, a longer-term horizon for the internal scenarios would better allow the Agency to assess each Enterprise’s plan to rebuild capital to come into compliance with the ERCF.

Contact

Sairah Burki
Managing Director, Regulatory Affairs
703.201.4294
sburki@crefc.org
The planning horizon would be defined as at least nine consecutive quarters for the FHFA scenarios and at least five years for the internal scenarios, consistent with the Enterprises’ corporate forecasts.
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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