FHFA Issues Final ERCF rule; Welcomes Newly Confirmed Director
Written By: Joel Palmer, Op-Ed Writer
The Federal Housing Finance Agency (FHFA) published a final rule last week that amends the Enterprise Regulatory Capital Framework (ERCF) by introducing new public disclosure requirements for Fannie Mae and Freddie Mac.
FHFA proposed the rule change in November 2021 to include quarterly quantitative and annual qualitative disclosures related to risk management, corporate governance, capital structure, and capital requirements.
“By allowing market participants to assess key information about the enterprises’ risk profiles and associated levels of capital, this final rule will promote transparency and encourage sound risk management practices at the enterprises,” said FHFA Director Sandra L. Thompson. “The rule published today will foster financial stability at the enterprises and in the broader housing finance market.”
FHFA said there were only minor modifications between the proposed rule and the final rule based on public comments. The enterprises will publish their first public disclosure reports under the final rule in the first quarter of 2023.
FHFA said the public disclosure requirements in the final rule align with many of the public disclosure requirements for large banking organizations under the regulatory capital framework adopted by banking regulators.
When the rule was proposed, FHFA said that while banks use either a standardized approach or an advanced approach to satisfy disclosure requirements, Fannie and Freddie are required to use both. The proposed rule adapts the public disclosure requirements in the U.S. banking framework to reflect the ERCF’s standardized approach.
The standardized approach disclosures in the proposed rule cover 11 categories:
Capital structure
Capital adequacy
Capital buffers
Credit risk
General disclosure for counterparty credit risk-related exposures
Credit risk mitigation
Credit risk transfers (CRT) and securitization
Equities
Interest rate risk for non-trading activities
Operational risk
Tier 1 leverage ratio
The public disclosure requirements in the final rule will bolster the ERCF, FHFA wrote, as it aims to ensure that each enterprise operates in a safe and sound manner and is positioned to fulfill its statutory mission to provide stability and ongoing assistance to the secondary mortgage market across the economic cycle, in particular during periods of financial stress.
In other FHFA news, acting director Thompson was confirmed by the Senate by a 49-46 vote last week to become the permanent director of the agency. She became the first African-American woman to lead the agency.
Thompson had served as the acting director for nearly a year. She took over the job from President Trump appointee Mark Calabria after the United States Supreme Court opened the way for the Biden Administration to replace Calabria as director.
Since 2013, Thompson had served as Deputy Director of the Division of Housing Mission and Goals (DHMG), where she oversaw FHFA’s housing and regulatory policy, capital policy, financial analysis, fair lending and all mission activities for Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Prior to that she worked for the Federal Deposit Insurance Corp for more than 23 years.
“Now more than ever, it is imperative that we have an FHFA director who will work to find equitable and innovative solutions to expand access to homeownership and affordable housing for every community and prospective homebuyer,” said Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services.
“Ms. Thompson’s years' worth of experience in promoting access to mortgage credit nationwide and protecting the safety and soundness of the housing finance system demonstrates her unwavering commitment to ensuring that the government-sponsored enterprises (GSEs) are well capitalized and operate to expand low-cost mortgage credit to all communities.”
Thompson’s confirmation was widely supported by those in the mortgage and housing industries.
"NAR applauds the U.S. Senate for confirming Sandra Thompson to lead FHFA," said Leslie Rouda Smith, president of the National Association of Realtors. "Her experience will benefit the enterprises, homeowners, homebuyers, and the mortgage financing ecosystem as a whole.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
