The Federal Housing Finance Agency (FHFA) has sent to the Federal Register two interim final rules. The rules implement sections of the Housing and Economic Recovery Act of 2008 (HERA), which required their submission within 180 days of its enactment on July 30, 2008.
For Fannie Mae and Freddie Mac, an interim final regulation governs their portfolio holdings. The regulation implements Section 1109 of HERA by adopting, as the standard for the government-sponsored enterprises' (GSEs) portfolio holdings, the criteria set forth in the Senior Preferred Stock Purchase Agreements executed between the Secretary of the Treasury and the FHFA on Sept. 6, 2008.
Those criteria, under which the GSEs currently operate and which could be adjusted by amendment of the agreements, provide that each enterprise may grow its mortgage assets up to $850 billion on Dec. 31, 2009, but, starting on Dec. 31, 2010, must hold 10% less mortgage assets in its portfolio than at the end of the preceding year until those assets reach a level of $250 billion.
In addition to requesting comment on the interim final rule, the regulation requests comment on criteria governing enterprise portfolio holdings that will apply when the enterprises are no longer subject to stock purchase agreements.
For the Federal Home Loan Banks (FHLBs), an interim final rule addresses both the critical capital level and four capital classification categories – adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The regulation principally implements sections 1141 and 1142 of HERA, regarding the critical capital level and capital classifications, respectively.
The critical capital level is the level at which an FHLB would be categorized as critically undercapitalized, which the rule sets at 2% of a bank's total assets, which is half the adequately capitalized requirement of 4%. Significantly undercapitalized is 3% of total assets.
The interim final rule also implements prompt corrective action provisions that HERA applied to the FHLBs. Fannie Mae and Freddie Mac already are subject to similar prompt corrective action provisions, which were adopted in the Federal Housing Enterprises Financial Safety and Soundness Act of 1992.
The interim final rule adopts criteria to define the four capital classification categories specifically listed in HERA, which criteria are based on the risk-based and minimum capital requirements set forth in the Federal Home Loan Bank Act.
The FHFA is requesting comment on whether it should adopt a fifth capital classification of "well-capitalized," as is used with respect to depository institution. The FHFA is also interested in comments on how a well-capitalized category should be defined, and what provisions should be adopted to encourage FHLBs to achieve a well-capitalized classification.