FHFA finalizes changes to commingled securities, bi-merge requirements

The Federal Housing Finance Agency published a final rule that amends several provisions of the Enterprise Regulatory Capital Framework for Fannie Mae and Freddie Mac.

Commingled Securities: The changes include provisions to reduce the risk weight applied to an enterprise’s exposure to the other enterprise in commingled securities from 20% to 5%. It also would reduce from 100% to 50% the credit conversion factor applied to these same exposures.

Bi-merge Requirements: The FHFA also decided not to include the bi-merge credit score calculation requirement in the final rule due to ongoing industry engagement related to credit score implementation.

ICBA Comments: In a comment letter earlier this year, ICBA said:

  • It largely supports the proposed changes because they would help maintain Uniform Mortgage Backed Security liquidity and would not penalize the commingling of enterprise securities.

  • The amendments generally meet the FHFA’s goals to protect taxpayers and to ensure the secondary market is safe, sound, and liquid.

  • The FHFA should resume discussions with the U.S. Treasury to resolve the warrants in the Preferred Stock Purchase Agreements to allow the enterprises to rebuild capital more quickly by raising outside equity.

Joint Letter: In a separate joint letter, ICBA and other groups said:

  • Ongoing industry engagement and dialogue is needed to successfully transition to a bi-merge credit report process.

  • Prematurely finalizing this transition in the Enterprise Regulatory Capital Framework could unnecessarily limit policy options going forward.