FHFA publishes final rule around capital initiatives

The Federal Housing Finance Agency on Wednesday published a final rule that requires Fannie Mae and Freddie Mac to submit annual capital plans to the agency. It follows the introduction of new public disclosure requirements through a separate rule last week.

Both rules supplement the recently-modified enterprise regulatory capital framework with changes to the leverage buffer amount and treatment for credit risk transfers.

“The final rule provides the enterprises with a stable regulatory framework that ensures the amount of capital held is commensurate with each of their risk profiles,” said Sandra Thompson, acting director of the FHFA, in a press release. (Thompson was recently confirmed as director of the FHFA, but is still in an acting role until she is officially sworn in.)

The modified capital framework and new investor disclosure requirements for Fannie and Freddie, which back a large share of the mortgages in the United States, is a key step toward ensuring their financial soundness and potentially releasing them conservatorship, something Thompson has expressed an interest in and Republicans have favored. This may have factored into Thompson’s confirmation vote. Although that vote was largely split down party lines, two independents and one Republican, Sen. Mike Rounds, R-S.D., supported her.

Capital forecasts will be mandatory elements of the new planning process and are among the steps that would support an exit from the conservatorships the GSEs have been in since the Great Recession’s housing crash. Those forecasts would first be used as a basis for rebuilding capital under ERCF requirements. At some point down the road, they could be used to approve dividends.

The rule also makes a stressed-based capital buffer determination used in the regulatory framework part of the new capital planning process for the two government-sponsored enterprises. Additionally, it sets May 20, 2023 as the date Fannie and Freddie will begin submitting their new annual capital plans to their regulator.