FHFA issues final rule on commingled securities for GSEs

The rule modified certain provisions of the Enterprise Regulatory Capital Framework

The Federal Housing Finance Agency (FHFA) on Tuesday published a final rule that amends several provisions of the Enterprise Regulatory Capital Framework (ERCF) for government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

The final rule is primarily related to guarantees on commingled securities, multifamily mortgage exposures secured by properties with government subsidies and derivatives and cleared transactions.

The final rule goes into effect Apr. 1, 2024, but certain provisions on derivative contracts, and cleared and collateralized transactions go into effect on Jan. 1, 2026.

“The Enterprise Regulatory Capital Framework is a critical tool to ensure the Enterprises responsibly manage their risks,” said FHFA Director Sandra Thompson. “Finalizing these proposed changes helps ensure the framework will continue to strengthen the Enterprises’ ability to provide liquidity throughout the economic cycle.”

After a stakeholder comment period, the new rule seeks to “enhance the ERCF, contribute to the Enterprises’ safety and soundness, and better enable [them] to fulfill their statutory mission throughout the economic cycle,” the rule said.

The new guideline includes a reduction in the risk weight and credit conversion factor for guarantees on commingled securities to 5% and 50%, respectively.

It also introduces a risk multiplier of 0.6 for multifamily mortgage exposures secured by properties with certain government subsidies. It replaces the current exposure methodology with the standardized approach for counterparty credit risk.

The credit score assumption for single-family mortgage exposures originated without a representative credit score has been updated to 680. The timing of the first application of the single-family countercyclical adjustment has been aligned with the first property value adjustment.

FHFA has also “identified several aspects of the ERCF where modifications will clarify and enhance the usefulness of the framework,” and has made changes in response.

These include expanding the definition of MSAs to include servicing rights on mortgage loans owned by a relevant GSE and the permission of eligible time-based call options in the CRT operational criteria, though this change is “subject to certain restrictions.”

In May, the Mortgage Bankers Association (MBA) submitted comments to the FHFA in response to proposed rulemaking that would amend certain parts of the ERCF, including many of the provisions in the final rule.

The MBA is “generally supportive” of most amendments in the proposal, it said, but noted concern regarding the proposal’s “changes to representative credit score calculations.” It urged the FHFA to consider “reducing the risk surcharge on third-party originated loans and the inclusion of a multifamily countercyclical adjustment.”

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