Federal Housing Finance Agency tweaks capital and leverage requirements for Fannie Mae and Freddie Mac

In a statement, the Federal Housing Finance Agency, a regulator which oversees housing giants Fannie Mae and Freddie Mac, has proposed changes to recently imposed capital and leverage requirements on the pair, which aims to encourage the pair to shift more risk from taxpayers to private investors, while allowing them to support the housing market.

“The proposed requirements provide the Enterprises with the necessary incentives to support sustainable lending initiatives by transferring a significant amount of credit risk away from the taxpayers to private investors that are better positioned to take this risk,” said FHFA acting director Sandra L. Thompson in a statement.

The proposed changes makes several changes to a capital rule first imposed on Fannie and Freddie in November 2020. That rule envisioned Fannie and Freddie would have to raise billions of dollars in capital and leverage cushions, as part of the regulator’s bid to prepare them to exit from government conservatorship.

The changes includes changes to the leverage buffer from fixed ratio to one that is more dynamic – that changes alongside the amount of capital the enterprises are required to hold. The changes would reduce the amount of capital the pair must hold after transferring credit risk on loans to a private party.

Fannie and Freddie, which guarantee over half of the nation’s mortgages, have operated under government control since a 2008 bailout midst the subprime mortgage crisis.

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