FHFA proposes Enterprise Regulatory Capital Framework amendments

September 20, 2021

The Federal Housing Finance Agency (FHFA) last week released further proposed amendments to the regulatory capital framework rule for the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac. Additional details can be found on CUNA’s Removing Barriers Blog.

The proposed amendments are intended to remove inappropriate capital disincentives to the Enterprises to transfer risk. The proposed amendments would:

  • Replace the fixed 1.5% prescribed leverage buffer amount (PLBA) with a dynamic PLBA equal to 50% of the Enterprise's stability capital buffer.
  • Lower the prudential floor of 10% on the risk weight assigned to any retained credit risk transfer (CRT) exposure to 5%.
  • Remove the requirement to apply an overall effectiveness adjustment to retained CRT exposures in accordance with the ERCF's securitization framework.

According to the FHFA, the changes should better reflect the risks inherent in the GSEs’ business models and encourage them to distribute acquired credit risk to private investors rather than to buy and hold that risk.