WASHINGTON — The Federal Housing Finance Agency will re-propose the entire post-conservatorship capital framework originally put forward in June 2018 under former agency director Mel Watt, and expects to release a revamped plan sometime next year, the agency said Tuesday.

Because Fannie Mae and Freddie Mac are now permitted to retain significantly higher levels of capital than they had when Watt originally issued the proposal, the agency believes it should be revisited instead of finalized as-is, said FHFA Director Mark Calabria.

“In fairness to all interested parties, the comments submitted during the previous rulemaking were submitted under a different set of assumptions about the future of the enterprises,” he said in a press release. “During the process of the rulemaking, important issues were identified that will be addressed in the re-proposal.”

“The objective is, have the capital rule finished, so that we know what the capital target is, and then they’ll raise the capital to meet that,” FHFA Director Mark Calabria told reporters in September.

Bloomberg News

Calabria also emphasized that a final rule will be completed in a timeline “fully consistent” with ending conservatorship of the two government-sponsored enterprises.

In Watt’s proposal, the agency asked for comment on two different minimum leverage ratio requirements that would incorporate credit risk for different mortgage categories and include components for market risk and operational risk. Under one option, the GSEs would have to hold capital equal to 2.5% of assets and off-balance-sheet guarantees. The second method would have required Fannie and Freddie’s capital to be equal to 1.5% of trust assets and 4% of nontrust assets.

But in comment letters to the FHFA submitted last November, a number of lenders and other stakeholders called for the GSEs to hold a higher amount of capital post-conservatorship than Watt’s proposal suggested, and expressed concern that the framework was too procyclical.

In September, Calabria had said that if he decided to re-propose the capital rule — something that he views as a vital prerequisite to ending conservatorship — the new rule would probably be completed around May 2020.

“The objective is, have the capital rule finished, so that we know what the capital target is, and then they’ll raise the capital to meet that,” Calabria told reporters in September.

Though Fannie and Freddie will not need to meet the capital standard set by the framework before they exit conservatorship, Calabria said in a speech last week, the final rule will give investors a clear idea of what is required.

Observers said the re-proposal will not significantly delay FHFA’s plans to spin the GSEs out from government control.

“We would not expect much change from the re-proposal to the final rule,” wrote Jaret Seiberg, an analyst with Cowen Washington Research Group. “As such, we believe the re-proposed rule will provide investors with the information needed to judge the ultimate capital needs for Fannie and Freddie. So investors can start planning for the recapitalization even if they are unwilling to pull the trigger until the rule is final.”



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