The Federal Housing Finance Agency (FHFA) has published a final rule that amends the Enterprise Regulatory Capital Framework (ERCF) by refining the prescribed leverage buffer amount (leverage buffer) and risk-based capital treatment of retained credit risk transfer (CRT) exposures for Fannie Mae and Freddie Mac.
Specifically, the final rule will replace the fixed leverage buffer equal to 1.5% of Fannie’s/Freddie’s adjusted total assets with a dynamic leverage buffer equal to 50% of its stability capital buffer. It will also replace the prudential floor of 10% on the risk weight assigned to any retained CRT exposure with a prudential floor of 5% on the risk weight assigned to any retained CRT exposure, as well as remove the requirement that a GSE must apply an overall effectiveness adjustment to its retained CRT exposures.
“The amendments finalized reflect the feedback FHFA received last year and advance FHFA’s mission of ensuring the enterprises are able to support the housing market throughout the economic cycle,” says Acting Director Sandra L. Thompson. “The final rule provides the enterprises with the necessary incentives to transfer credit risk to private investors, which will help protect taxpayers from the risks posed by the enterprises and will support the enterprises as they strive to provide equitable and sustainable access to mortgage credit.”
The final rule also makes technical corrections to various provisions of the ERCF that was published on December 17, 2020. The effective date for the ERCF amendments and technical corrections in this final rule will be 60 days after the day of publication in the Federal Register.