GSE capital rule expected this summer: FHFA's Otting

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WASHINGTON — The Federal Housing Finance Agency is planning to finalize its proposed capital requirements for the government-sponsored enterprises this summer, according to acting Director Joseph Otting.

“Clearly we’re working on the capital model at the FHFA,” Otting said, speaking at an event Wednesday at George Mason University’s law school. “We hope by late July, middle of August to have the capital rule completed. That will be an integral part of that, because then it will determine how much capital they have to have to operate independently.”

Under former FHFA Director Mel Watt, the agency released a proposed risk-based capital framework and minimum leverage ratio requirements in June that would only go into effect if the mortgage giants Fannie Mae and Freddie Mac were to be released from conservatorship.

Although the plan remains hypothetical while the GSEs remain stewards of the government, stakeholders have been active in commenting on the two capital proposals, and some have even called for a higher level of required capital than the agency suggested, as well as changes to risk factors to protect the enterprises in a downturn.

Otting’s comments on the capital framework came the same day that President Trump signed a memo directing the Treasury Department and the Department of Housing and Urban Development to develop GSE reform plans, with the goal of ending conservatorship.

“That put a strong stake in the ground that the administration believes that they should exit conservatorship,” Otting said. “And then it’s like, OK, you’re not debating whether you’re going to do that — it’s how do you do that?”

The FHFA’s capital framework will be an “integral part” of a reform plan, Otting said.

“And then it’s how do you raise that capital?” he said. “You can do it through retained earnings, but there’s probably going to have to be an alternative source of capital that’s brought into those entities."

According to reports, Otting told FHFA staff in January that the amount of capital Fannie and Freddie would need is “probably somewhere, based upon their business models today," in the range of $150 billion to $200 billion.

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GSEs GSE reform Minimum capital requirements Risk-based capital rule Policymaking Joseph Otting FHFA Fannie Mae Freddie Mac Treasury Department