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9/26/2020

Financial Stability Oversight Council Issues Statement on Activities-Based Review of Secondary Mortgage Market Activi…

Financial Stability Oversight Council Issues Statement on
Activities-Based Review of Secondary Mortgage Market
Activities
September 25, 2020

WASHINGTON – The Financial Stability Oversight Council (Council) today voted unanimously
to approve a statement summarizing its review of the secondary mortgage market. The
Council’s review focused in particular on the activities of Fannie Mae and Freddie Mac (the
Enterprises). In conducting the review, the Council applied the framework for an activitiesbased approach described in the interpretive guidance on nonbank financial company
determinations issued by the Council in December 2019.
The Council’s review noted the central role the Enterprises continue to play in the national
housing finance markets, and found any distress at the Enterprises that a ected their
secondary mortgage market activities, including their ability to perform their guarantee and
other obligations on their mortgage-backed securities (MBS) and other liabilities, could pose
a risk to financial stability, if risks are not properly mitigated. The Council’s review also
considered whether the regulatory framework of the Federal Housing Finance Agency (FHFA)
would adequately mitigate this potential risk posed by the Enterprises.
The FHFA’s recent capital proposal was central to the Council’s analysis; the Council
considered whether the proposed capital rule is appropriately sized and structured, given
the Enterprises’ risks and their key role in the housing finance system, and also whether the
proposed capital rule promotes stability in the broader housing finance system. The Council
presents the following key findings:

The Council encourages FHFA and other regulatory agencies to coordinate and take other
appropriate action to avoid market distortions that could increase risks to financial
stability by generally taking consistent approaches to the capital requirements and other
regulation of similar risks across market participants, consistent with the business
models and missions of their regulated entities.
The Council also encourages FHFA to consider the relative merits of alternative
approaches for more dynamically calibrating the capital bu ers. The capital bu ers
https://home.treasury.gov/news/press-releases/sm1136

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9/26/2020

Financial Stability Oversight Council Issues Statement on Activities-Based Review of Secondary Mortgage Market Activi…

should be tailored to mitigate the potential risks to financial stability and otherwise
ensure that the Enterprises have su icient capital to absorb losses during periods of
severe stress and remain viable going concerns, while balancing other policy objectives.
Finally, the Council encourages FHFA to ensure high-quality capital by implementing
regulatory capital definitions that are similar to those in the U.S. banking framework.
The Council also encourages FHFA to require the Enterprises to be su iciently capitalized
to remain viable as going concerns during and a er a severe economic downturn.
Read the Council’s full statement
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https://home.treasury.gov/news/press-releases/sm1136

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