FHFA Issues NPR Regarding Capital Planning

On December 27, 2021, the Federal Housing Finance Agency (FHFA) issued a notice of proposed rulemaking (NPR) which discusses amending the Enterprise Regulatory Capital Framework (ERCF) to require the GSEs to submit annual capital plans to FHFA and provide notice for certain capital actions.

The NPR would amend the ERCF’s leverage buffer and its treatment of credit risk transfer (CRT) transactions. Among other things, the proposal would remove the requirement that a GSE must apply an overall effectiveness adjustment to its retained CRT exposures. The NPR also poses specific questions for public comment on these changes and proposes several technical corrections to the final rule published on December 17, 2020.

FHFA stated that it intends these amendments to facilitate an environment where leverage is not the binding capital constraint for the GSEs and where the GSEs have incentives to distribute acquired credit risk to private investors through CRT transactions rather than to buy and hold that risk. Those looking to comment on the NPR must submit their comments on or before February 25, 2022, for consideration.