January 15, 2021

GSEs to retain earnings to meet capital requirements

GSEsThe Federal Housing Finance Agency (FHFA) and Treasury Department Thursday announced amendments to the Preferred Stock Purchase Agreements, allowing the government-sponsored enterprises (GSEs) to retain earnings until they meet capital rule requirements. In addition, the announcement indicated that Treasury will permit the GSEs to raise private capital and exit conservatorship once certain conditions are met, in addition to restructuring the department's investment in each enterprise.

"The FHFA and Treasury's decision to allow the GSEs to continue to retain earnings to meet capital requirements, raise private capital, and meet other essential conditions moves the GSEs closer to exiting conservatorship," said NAFCU President and CEO Dan Berger. "NAFCU supports a robust capital framework. However, we encourage the FHFA to work with Congress to codify certain protections – including those to ensure credit unions have guaranteed and equal access to the secondary market and receive fair pricing based upon loan quality, not volume – before the GSEs are officially released from conservatorship.

"NAFCU looks forward to working with Congress, the Administration, the FHFA, and Treasury as credit unions play an important role in the housing market."

The FHFA released the final rule to establish capital requirements for Fannie Mae and Freddie Mac in November, marking an additional step toward removing the GSEs from conservatorship. Under the rule, the GSEs are required to hold total capital not less than 8 percent of their risk-weight assets, which amounts to roughly $280 billion in capital against their combined $6.6 trillion in assets.

As finalized, the rule offered NAFCU-sought concessions concerning credit risk transfers (CRTs) that intend to "increase the capital relief afforded an Enterprise for well-structured CRT on many common mortgage exposures, and generally to provide increased risk sensitivity in the CRT framework, potentially increasing incentives for the Enterprises to engage in CRT."

NAFCU had previously urged the agency to "adopt a realistic capital framework for the GSEs to begin moving toward exiting conservatorship." Before finalizing the rule, the agency hosted listening sessions on the topic where NAFCU reiterated its concerns with the rule as proposed.

In addition, the FHFA last month issued a proposed rulemaking to implement minimum liquidity and funding requirements for the GSEs, daily management reporting of their liquidity positions, monthly public disclosure reporting requirements, and more.

NAFCU will continue to work closely with the FHFA, Treasury, and Congress to ensure credit unions' concerns are addressed as the GSEs rebuild capital and move toward the end of their conservatorship.