U.S. housing finance regulator unveils new capital framework for Fannie, Freddie

FILE PHOTO: Mark Calabria, Director-Designate, Director of the Federal Housing Finance Agency, testifies during a nomination hearing on Capitol Hill in Washington, U.S., February 14, 2019. Courtesy Joy Holder/U.S. Senate Photographic Studio/Handout via REUTERS

WASHINGTON (Reuters) - The U.S. regulator charged with overseeing housing giants Fannie Mae and Freddie Mac unveiled Thursday a proposed rewrite of rules boosting how much capital the pair must hold to weather a downturn.

The re-proposed rule from the Federal Housing Finance Agency would establish a bank-like capital regime for the two and require them to establish capital cushions worth hundreds of billions of dollars. The goal would be to ensure they would be able to continue to provide a backstop for the mortgage market in a housing downturn, and eventually be freed from a 12-year government bailout.

“More capital means a stronger foundation on which to weather crises. The time to act is now,” said FHFA Director Mark Calabria in a statement.

The new proposal is the FHFA’s second attempt at creating a new capital plan, building on a previous proposal put out in 2018 under prior leadership. The new plan would establish higher capital requirements for the two - if the proposal had been in effect in 2019, the pair would have had a cushion of roughly $243 billion, the FHFA said.

But the proposal also attempts to make the cushion more risk-sensitive, with an eye towards ensuring capital and liquidity buffers could be used by Fannie and Freddie in an economic downturn to continue guaranteeing mortgages and keeping home loans affordable.

The new proposal is open to public comment, and the FHFA would like to finalize it by the end of 2020 so Fannie and Freddie could look to raise outside capital sometime in 2021, agency officials said.

Reporting by Pete Schroeder; Editing by Nick Zieminski