Capital Framework Changes Will Strike Better Balance
See all Insights

Capital Framework Changes Will Strike Better Balance

Mortgage Banker Magazine, May 1, 2023

At the end of February, the Federal Housing Finance Agency (FHFA) announced a proposed rule to amend the Enterprise Regulatory Capital Framework (ERCF) for Fannie Mae and Freddie Mac (the Enterprises). FHFA indicated that the proposed rule would clarify the ERCF and further align it with risks faced by the Enterprises.

Under the new proposed rule, commingled Uniform Mortgage-Backed Security’s (UMBS) capital requirements would reduce from 20% to 5%, while credit conversion factors would reduce 100% to 50%. Additionally, the rule proposes a risk multiplier of 0.6 for certain subsidy-associated multifamily mortgage exposures, offers a standardized approach for counterparty credit risk (SA-CCR), and modifies procedures for determining a representative credit score for single-family mortgage exposure. Overall, these changes are estimated to lower the common equity tier 1 (CET1) capital needed to meet the Enterprises’ risk-based capital requirements and buffers from $226.4 billion annually to $220.8 billion.

Now, FHFA is seeking comment on this rule and interested stakeholders should review the proposal for any impact.

For read the rest of this article, click here.

Recent Insights

Loading...