FHFA extends date for final counterparty requirements

As part of the Federal Housing Finance Agency’s recap of past-year initiatives for Congress, the regulator extended the deadline for its final version of counterparty requirements and noted roadblocks to Fannie Mae and Freddie Mac’s exit from conservatorship.

The reproposed minimum financial eligibility requirements for mortgage companies that government-sponsored enterprises Fannie Mae and Freddie Mac work with are now specifically set to be finalized in the third quarter, according to the annual report to Congress. They were previously set to be finalized in the second quarter. Implementation will be at least six months after the finalized requirements are available, with some on a later timeline than others, as previously announced.

The FHFA also reiterated that limits to its authority create a need for congressional action to further the conservatorship exit that recently confirmed Director Sandra Thompson said she would support.

“It remains with Congress to determine the structure of the enterprises and the secondary mortgage market for the post-conservatorship world,” the FHFA’s recap read.

Limits to the FHFA’s authority have also hamstrung the agency regarding the setting of capital requirements for Fannie and Freddie, which will ensure their financial safety and prepare them for an exit, the report noted.

The FHFA has statutory authority that retains some outdated definitions for capital, including the inclusion of some elements like deferred tax assets “that tend to have less loss-absorbing capacity during a period of financial stress,” the report noted.

While more recent supplemental requirements added by the agency effectively update these capital requirements, the process has been unwieldy, according to the agency.

“If Congress were to give FHFA the same flexibility as the federal banking regulators by amending or removing the statutory capital definitions, FHFA could streamline the capital regulation,” the report noted.

The FHFA also noted a gap in its authority over the Federal Home Loan Banks that limits its oversight of data security and other operational risks related to their technology vendors.

“These third-party relationships can pose risks related to mortgage origination and servicing,” the report said, noting while the agency has some authority over this when it comes to Fannie and Freddie, it does not for the FHLBs because the latter are not in conservatorship.

The report also recapped several other FHFA initiatives from the past year, including those related to climate change, nonbank oversight and housing goals.