[Federal Register Volume 86, Number 5 (Friday, January 8, 2021)]
[Proposed Rules]
[Pages 1306-1326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28204]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1241

RIN 2590-AB09


Enterprise Liquidity Requirements

AGENCY: Federal Housing Finance Agency.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: The Federal Housing Finance Agency (FHFA) requests comment on 
a proposed rule that would implement four liquidity and funding 
requirements for Fannie Mae and Freddie Mac (the Enterprises). The 2008 
financial crisis demonstrated substantial weaknesses in the liquidity 
positions of the Enterprises. Liquidity and funding challenges were a 
significant contributing factor to establishment of the 
conservatorships in September 2008. The proposed rule builds on the 
improvements made to the U.S. banking supervision framework's 
regulation of institutions' liquidity requirements, and on experience 
since the 2008 financial crisis including with the more recent 2020 
COVID-19-related financial market stress. FHFA believes that a robust 
Enterprise liquidity framework will improve market confidence in the 
Enterprises' ability to fulfill their mission and provide 
countercyclical support to housing finance markets in times of stress, 
while further minimizing the likelihood that they will need further 
taxpayer support. FHFA envisions that an appropriate framework would 
incent the Enterprises to build their liquidity portfolios in good 
times, so that it is available to be deployed as necessary in times of 
stress.

DATES: Comments must be received on or before March 9, 2021.

ADDRESSES: You may submit your comments on the proposed rule, 
identified by regulatory information number (RIN) 2590-AB09, by any one 
of the following methods:
    <bullet> Agency Website: www.fhfa.gov/open-for-comment-or-input.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comment to the Federal eRulemaking Portal, please also send it by email 
to FHFA at <a href="/cdn-cgi/l/email-protection#6a380f0d290507070f041e192a0c020c0b440d051c"><span class="__cf_email__" data-cfemail="5604333115393b3b3338222516303e303778313920">[email protected]</span></a> to ensure timely receipt by FHFA. 
Include the following information in the subject line of your 
submission: Comments/RIN 2590-AB09.
    <bullet> Hand Delivered/Courier: The hand delivery address is 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AB09, 
Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW, 
Washington, DC 20219. Deliver the package at the Seventh Street 
entrance Guard Desk, First Floor, on business days between 9 a.m. and 5 
p.m.
    <bullet> U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AB09, Federal 
Housing Finance Agency, Eighth Floor, 400 Seventh Street SW, 
Washington, DC 20219. Please note that all mail sent to FHFA via U.S. 
Mail is routed through a national irradiation facility, a process that 
may delay delivery by approximately two weeks. For any time-sensitive 
correspondence, please plan accordingly.

FOR FURTHER INFORMATION CONTACT: Jamie Newell, Associate Director, 
Division of Resolutions, (202) 649-3530, <a href="/cdn-cgi/l/email-protection#abe1cac6c2ce85e5cedccec7c7ebcdc3cdca85ccc4dd"><span class="__cf_email__" data-cfemail="551f34383c307b1b302230393915333d33347b323a23">[email protected]</span></a>; Ming-
Yuen Meyer-Fong, Associate General Counsel, Office of General Counsel, 
(202) 649-3078, <a href="/cdn-cgi/l/email-protection#286541464f05715d4d4606654d514d5a056e47464f684e404e49064f475e"><span class="__cf_email__" data-cfemail="e4a98d8a83c9bd91818acaa9819d8196c9a28b8a83a4828c8285ca838b92">[email protected]</span></a>; or Mark Laponsky, Deputy 
General Counsel, Office of General Counsel, (202) 649-3054, 
<a href="/cdn-cgi/l/email-protection#723f1300195c3e13021d1c01190b32141a14135c151d04"><span class="__cf_email__" data-cfemail="98d5f9eaf3b6d4f9e8f7f6ebf3e1d8fef0fef9b6fff7ee">[email protected]</span></a>. These are not toll-free numbers. The telephone 
number for the Telecommunications Device for the Deaf is (800) 877-
8339.

SUPPLEMENTARY INFORMATION: The proposed rule establishes four 
quantitative liquidity requirements that address the short, 
intermediate and long-term liquidity needs of the Enterprises. The 
short-term 30-day liquidity requirement is designed to promote the 
short-term resilience of the liquidity risk profile of the Enterprises, 
thereby improving the Enterprise's ability to absorb shocks arising 
from financial market and economic stresses. In addition, the proposed 
rule includes an intermediate-term 365-day liquidity requirement to 
ensure that the Enterprises manage their liquidity needs beyond the 
short-term, and to provide additional incentives to fund their 
activities in a more stable fashion. Finally, the proposed rule 
includes two longer-term liquidity and funding requirements that 
encourage the issuance of an appropriate mix of longer-term debt to 
reduce the Enterprises' rollover risk. FHFA expects that this more 
appropriate mix of longer-term debt will also reduce the risk that the 
Enterprises would have to sell less-liquid assets in distressed 
markets.

Comments

    FHFA invites comments on all aspects of the proposed rule and will 
take all comments into consideration before issuing a final rule. 
Copies of all comments will be posted without change, and will include 
any personal information you provide such as your name, address, email 
address, and telephone number, on the FHFA website at http://www.fhfa.gov. In addition, copies of all comments received will be 
available for examination by the public through the electronic 
rulemaking docket for this proposed rule also located on the FHFA 
website.

Table of Contents

I. Introduction
    A. Background
    B. Overview of the Proposed Rule
II. Liquidity and Funding Requirements
    A. Short-Term and Intermediate Term Liquidity Requirements
    1. High Quality Liquid Assets
    a. Federal Reserve Bank Balances
    b. U.S. Treasury Securities
    c. U.S. Treasury Repurchase Agreements Cleared Through the FICC
    d. Overnight Unsecured Deposits in Eligible Banks
    2. Non-Allowable Investments and Wrong-Way Risk
    3. Operational Requirements for High Quality Liquid Assets
    4. Cash Flows
    5. Daily Excess Requirement
    6. Stressed Cash Flow Scenarios
    a. Complete Loss of Ability To Issue Unsecured Debt
    b. Cash Window or Whole Loan Conduit Purchases
    c. Borrower Scheduled Principal, Interest, Tax, and Insurance 
Remittances
    d. Delinquent Loan Buyouts From MBS Trusts
    e. FICC Collateral Needs
    f. Liquidity Facility for Variable-Rate Demand Bonds
    g. Non-Bank Seller/Servicer Shortfalls
    7. Unsecured Callable Debt
    8. Changes in Financial Condition
    B. Long-Term Liquidity and Funding Requirements
    1. Background
    2. Long-Term Liquidity and Funding Requirements
    a. Long-Term Unsecured Debt to Less-Liquid Asset Ratio
    b. Spread Duration of Unsecured Debt to Spread Duration of 
Assets Requirement
    c. Funding From Stockholders Equity
    C. Temporary Reduction of Liquidity Requirements
III. Liquidity Risk Management Reporting
IV. Supervisory Framework
    A. Liquidity Requirement Shortfall

[[Page 1307]]

    B. Process for Supervisory Determination of Temporarily 
Increased Liquidity Requirements
V. Paperwork Reduction Act
VI. Regulatory Flexibility Act

I. Introduction

A. Background

    Liquidity risk management is a part of any safety and soundness 
regulatory framework for financial institutions. The 2008 financial 
crisis demonstrated substantial weaknesses in the liquidity positions 
of the Enterprises, and liquidity and funding challenges were a 
significant contributing factor to establishment of the 
conservatorships in September 2008. The Enterprises had more than five 
trillion dollars in agency MBS and agency unsecured debt outstanding, 
held by various types of investors. Certain investors expressed 
significant concern about the credit worthiness of the Enterprises in 
the absence of an explicit guarantee from the U.S. government given the 
possible Enterprise losses arising from the 2008 housing crisis.
    On September 6, 2008, the Enterprises were placed into 
conservatorship by FHFA. In connection with this action, the U.S. 
Department of the Treasury (U.S. Treasury) agreed to backstop losses by 
the Enterprises based on the terms of Senior Preferred Stock Purchase 
Agreements (PSPAs) entered into with each Enterprise in 
conservatorship. Even after receiving this public support from the U.S. 
government, the Enterprises had significant difficulty issuing longer 
term debt in late 2008. Their primary source of funding was through the 
issuance of short-term discount notes, most of which had maturities 
significantly less than one year. The Enterprises eventually increased 
their ability to issue longer-term debt in 2009 and 2010 as the U.S. 
Treasury amended the PSPAs and increased its support to the 
Enterprises.
    Banks in the United States and globally also experienced difficulty 
meeting their obligations during the crisis due to a breakdown of 
funding markets. As a result, many governments and central banks across 
the world provided unprecedented levels of liquidity support to 
companies in the financial sector in an effort to sustain the global 
financial system. In the United States, the Board of Governors of the 
Federal Reserve System (Federal Reserve Board) and the Federal Deposit 
Insurance Corporation (FDIC) established various temporary liquidity 
facilities to provide sources of funding for a range of asset classes.
    These severe market stress events came in the wake of a period 
characterized by ample liquidity in the U.S. financial system. The 
rapid reversal in market conditions and the declining availability of 
liquidity during the financial crisis illustrated both the speed with 
which liquidity can evaporate and the potential for protracted 
illiquidity during and following these types of market events. In 
addition, the recent COVID-19-related financial crisis reminded market 
participants of the speed at which the detrimental effects of a 
liquidity and funding crisis can manifest, as the majority of funding 
markets ``locked up'' in mid-March 2020. For example, the Enterprises 
had significant difficulty issuing longer-term fixed rate unsecured 
term debt in mid-March 2020, and that lack of investor demand lasted 
into June 2020. Market participants noted stress even in the U.S. 
Treasury markets.
    In 2008, the Enterprises' failure to adequately address these 
challenges was in part due to lapses in basic liquidity risk management 
practices, such as establishing an adequate portfolio of highly liquid 
assets to serve as a buffer in a crisis. During the 2008 financial 
crisis, the Enterprises maintained a liquidity portfolio largely 
composed of credit card asset backed securities, auto asset backed 
securities and other corporate unsecured debt, with minimal amounts of 
U.S. Treasury securities.
    Recognizing the need for the Enterprises to improve their liquidity 
risk management and to control their liquidity risk exposures, in 2009 
FHFA convened an interagency task force composed of examiners from the 
New York Federal Reserve Bank, the Federal Reserve Board, U.S. Treasury 
staff, Enterprise staff, and FHFA examiners. The discussions included 
draft standards being developed by U.S. banking and foreign 
jurisdictions to establish international liquidity standards. These 
standards included the principles based on supervisory expectations for 
liquidity risk management in the ``Principles for Sound Liquidity 
Management and Supervision'' (Basel Liquidity Principles). In addition 
to these principles, quantitative standards for liquidity were 
introduced to the U.S. banking supervision framework in the form of a 
liquidity coverage ratio (LCR) in 2013 (and subsequently approved in 
2014) and a net stable funding ratio (NSFR) in 2016 \1\ (and 
subsequently approved in 2020).
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    \1\ Following the 2008 financial crisis, the Basel Committee on 
Banking Supervision established two international liquidity 
standards as a part of the Basel III reform package: A short-term 
liquidity metric, the Basel LCR standard, to address the risk that 
banking organizations may face significantly increased net cash 
outflows in a short-term period of stress, and the Basel NSFR 
standard, to address structural funding risks at banking 
organizations over a longer-term horizon. See ``Basel III: The 
Liquidity Coverage Ratio and liquidity risk monitoring tools'' 
available at https://www.bis.org/publ/bcbs238.htm; Basel III: the 
net stable funding ratio'' available at https://www.bis.org/bcbs/publ/d295.htm.
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    After consultation with the U.S. banking regulators about these 
developing liquidity risk quantitative standards and how they might 
apply to the Enterprises, FHFA issued a supervisory letter in December 
2009 that established minimum 30-day and 365-day liquidity requirements 
for Fannie Mae. FHFA issued similar supervisory guidance to Freddie Mac 
and added a requirement that Freddie Mac build out the capability to 
measure the cumulative net daily cash needs out to 365 days. FHFA's 
supervisory letters also required that 50 percent of the Enterprises' 
30-day cumulative net cash need requirement be held in cash at the 
Federal Reserve or in U.S. Treasury securities, with the balance of the 
liquidity portfolio limited to other defined highly liquid assets. 
These FHFA supervisory requirements were adopted by the Enterprises as 
board liquidity risk limits and serve as the foundation for the 
currently proposed 30-day and 365-day liquidity requirements.
    The most significant change made by the proposed rule to the 
Enterprises' liquidity management regimes would be the addition of 
certain assumptions involving stressed cash inflows and outflows. 
Maintaining a sufficient portfolio of high quality liquid assets to 
meet these stressed cash outflow and limited cash inflow assumptions 
would position the Enterprises to provide mortgage market liquidity in 
times of market stress even if they cannot issue debt. In effect, FHFA 
proposes to require that certain contingencies, like additional cash 
outflows from buying loans through the cash window (also known as the 
whole loan conduit at Fannie Mae), and buying delinquent loans out of 
pools assuming a distressed mortgage market, be prefunded and backed by 
an appropriately-sized portfolio of U.S. Treasury securities and other 
high quality liquid assets.
    FHFA standards for safe and sound operations for the Enterprises 
include those set forth in the Prudential Management and Operations 
Standards (PMOS) \2\ at 12 CFR part 1236 Appendix. Standard 5 (Adequacy 
and

[[Page 1308]]

Maintenance of Liquidity and Reserves) states that each Enterprise 
should establish a liquidity management framework, articulate liquidity 
risk tolerances; and establish a process for identifying, measuring, 
monitoring, controlling, and reporting its liquidity position and 
liquidity risk exposures. In addition, Standard 5 includes guidelines 
for conducting stress tests to identify sources of potential liquidity 
strain and guidelines for establishing contingency funding plans. The 
proposed rule amplifies that standard by setting forth detailed 
regulatory requirements.
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    \2\ See 12 CFR part 1236 (Prudential Management and Operations 
Standards).
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    Furthermore, FHFA's Corporate Governance regulation specifies 
obligations of Enterprise management and of the Board of Directors 
regarding, among other things, Enterprise risk management. See Sec.  
1239.4(a) (management of a regulated entity is by or under the 
direction of its Board of Directors, which is ultimately responsible 
for overseeing the management of the regulated entity). The Board of 
Directors of each Enterprise is responsible for approving and 
maintaining an enterprise-wide risk management program that, among 
other things, addresses the Enterprise's exposure to liquidity risk. 
See Sec.  1239.11(a) (``Each regulated entity's board of directors 
shall approve, have in effect at all times, and periodically review an 
enterprise-wide risk management program that establishes the regulated 
entity's risk appetite, aligns the risk appetite with the regulated 
entity's strategies and objectives . . .'').
    In developing and adopting this proposed rule, FHFA exercises 
general regulatory and supervisory authority under section 1311(b) of 
the Federal Housing Enterprises Financial Safety and Soundness Act 
(Safety and Soundness Act) providing that each regulated entity ``be 
subject to the supervision and regulation of the Agency.'' 12 U.S.C. 
4511(b). By establishing minimum liquidity requirements and a 
supervisory framework to address shortfalls and exigencies requiring 
temporary increases to the required minimum liquidity, the proposed 
rule supports FHFA in carrying out its duty under section 1313(a) of 
the Safety and Soundness Act ``to oversee the prudential operations of 
each regulated entity'' and ``to ensure that . . . each regulated 
entity operates in a safe and sound manner, including maintenance of 
adequate capital and internal controls.'' 12 U.S.C. 4513(a) (FHFA 
duties also include ensuring that the operations and activities of the 
Enterprises foster ``liquid'' national housing finance markets). 
Section 1313(a) of the Safety and Soundness Act provides maintenance of 
adequate capital as an example but does not limit the scope of FHFA 
oversight of Enterprise prudential operations solely to ensuring that 
the Enterprises maintain adequate capital. Lack of adequate liquidity 
is a safety and soundness concern in itself but could also affect 
Enterprise capital. FHFA's oversight of prudential operations 
necessarily includes oversight of Enterprise liquidity.
    The proposed rule also supports FHFA oversight of Enterprise 
prudential management, including compliance with standards pertaining 
to ``adequacy and maintenance of liquidity and reserves.'' 12 U.S.C. 
4513b(a)(5). This regulation is an additional standard on that subject. 
By implementing FHFA authority in a manner to permit, during market 
stress, temporary reductions in required minimum liquidity and, thus, 
to allow previously built-up liquidity to be deployed during periods of 
market stress, the proposed rule also supports Congressional intent for 
FHFA to maintain the ``continued ability'' of the Enterprises to 
accomplish their public missions. 12 U.S.C. 4501(2); see also 12 U.S.C. 
1716 and 12 U.S.C. 1451 note (Enterprise public mission includes 
providing ``ongoing assistance to the secondary market for residential 
mortgages . . . by increasing the liquidity of mortgage investments'').
    Current FHFA regulations do not require the Enterprises to meet a 
quantitative liquidity standard. Rather, FHFA evaluates the 
Enterprises' methods for measuring, monitoring, and managing liquidity 
risk on a case-by-case basis in conjunction with its supervisory 
processes and guidance. On August 22, 2018, FHFA issued Advisory 
Bulletin (AB) 2018-06 titled ``Liquidity Risk Management''. The 
Liquidity Risk Management AB incorporates liquidity risk management 
elements consistent with the Basel Liquidity Principles. The Liquidity 
Risk Management AB also emphasizes the central role of corporate 
governance, cash-flow projections, stress testing, ample liquidity 
resources, intra-day funding risk management, and formal contingency 
funding plans as necessary tools for effectively measuring and managing 
liquidity risk. However, as guidance, these FHFA pronouncements are not 
quantitative and lack the force of a duly adopted regulation.
    The proposed rule would enhance the supervisory efforts and 
liquidity risk management practices described in AB 2018-06, which are 
aimed at measuring and managing liquidity risk, by implementing four 
minimum quantitative liquidity requirements. The proposed rule would 
establish a minimum short-term liquidity requirement that would be 
similar to the LCR approved by the Office of the Comptroller of the 
Currency, Department of the Treasury (OCC), Federal Reserve Board, and 
FDIC (U.S. banking regulators), with some modifications to reflect 
characteristics and risks of specific aspects of the Enterprises 
businesses, as described in this preamble.
    FHFA notes that the U.S. banking regulators recently issued a final 
NSFR rule (NSFR final rule) that was initially included in the Basel 
liquidity framework when it was first published in 2010. While the 
Basel III LCR is focused on measuring liquidity resilience over a 
short-term period of severe stress, the NSFR final rule is intended to 
promote resilience by creating additional incentives for banking 
organizations and other financial companies to fund their activities 
with more stable sources and encouraging a sustainable maturity 
structure of assets and liabilities. Similarly, to encourage the 
Enterprises to issue appropriate amounts of longer-term debt and 
maintain a sustainable debt term structure, FHFA is proposing a 365-day 
intermediate term and two longer-term liquidity requirements to provide 
quantitative limits on the liquidity and funding risks of the 
Enterprises. A key objective of these liquidity and funding 
requirements is to ensure that the Enterprises have sufficient long-
term funding to minimize rollover risk and fund less-liquid assets with 
longer-term debt and thus avoid having to sell such less-liquid assets 
into distressed markets.

B. Overview of the Proposed Rule

    FHFA is requesting comment on a proposed rule that would implement 
four liquidity and funding requirements. The proposed rule would also 
require daily reporting to FHFA of the Enterprises' liquidity positions 
and other information, as well as monthly disclosures to the public.
    <bullet> The short-term (30-day) requirement is substantially 
similar to the U.S. banking regulator's LCR final rule (LCR final rule) 
\3\ and would require the Enterprises to maintain a liquidity portfolio 
composed of high quality liquid assets large enough to cover the

[[Page 1309]]

sum of: (i) The highest cumulative daily net cash outflows over 30 
calendar days under certain specified stressed market assumptions, 
including a complete inability of the Enterprises to issue debt; and 
(ii) An excess requirement in the amount of $10 billion.
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    \3\ See 79 FR 61440 (October 10, 2014) (Liquidity Coverage 
Ratio: Liquidity Risk Measurement Standards--OCC 12 CFR part 50; 
Federal Reserve Board 12 CFR part 249; FDIC 12 CFR part 329).
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    <bullet> The intermediate-term (365-day) liquidity requirement is 
designed to promote intermediate-term management of liquidity risks and 
to encourage an appropriate amount of longer-term funding to reduce 
debt rollover risks. It is substantially similar to the 30-day 
requirement and based on similar stressed assumptions, except that 
certain stressed assumptions last 365 days. The proposed rule would 
require the Enterprises to maintain a portfolio of high quality liquid 
assets, together with mortgage-backed securities (MBS) eligible to be 
pledged as collateral to the Fixed Income Clearing Corporation (FICC) 
(subject to a haircut), large enough to cover the worst daily 
cumulative net cash outflow over 365 calendar days under those stress 
assumptions. FHFA proposes not to include an excess requirement in 
connection with the 365-day liquidity requirement.
    <bullet> The first long-term liquidity requirement is designed to 
encourage an appropriate amount of long-term unsecured debt to support 
less-liquid retained portfolio assets so that the Enterprises have the 
ability to hold such assets for at least a year without having to sell 
them into potentially distressed markets. Intended to be a simple, 
transparent metric, this requirement is conceptually similar to the 
NSFR proposed rule, recently finalized, and would require the 
Enterprises to maintain a minimum ratio of long-term unsecured debt to 
less-liquid assets exceeding 120 percent.\4\
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    \4\ See Federal Register notice, ``Net Stable Funding Ratio: 
Liquidity Risk Measurement Standards and Disclosure Requirements,'' 
Federal Reserve Board, October 20, 2020. Access at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20201020b1.pdf.
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    <bullet> The second long-term requirement is also designed to 
encourage the Enterprises to issue an appropriate amount of longer-term 
unsecured debt to support all retained portfolio assets, not just less-
liquid assets. This requirement sets a minimum ratio for the duration 
of an Enterprise's unsecured agency debt over the duration of all its 
retained portfolio assets and requires that such ratio exceed 60 
percent.
    As described earlier, the proposed rule's four quantitative minimum 
liquidity requirements build upon the U.S. banking supervision 
framework. These new liquidity and funding requirements also build upon 
existing Enterprise board liquidity risk limits and methodologies used 
by the Enterprises to assess exposures to contingent liquidity events 
but are more conservative than the Enterprises' existing board risk 
limits. The proposed rule would also complement existing FHFA 
supervisory guidance provided in AB 2018-06, and add to FHFA's 
standards for safe and sound operations for the Enterprises as set 
forth in the PMOS.
    Given that the Enterprises do not have access to the Federal 
Reserve Discount Window or a stable customer deposit base, FHFA 
proposes to define high quality liquid assets as: (i) Cash held in a 
Federal Reserve account; (ii) U.S. Treasury securities; (iii) Short-
term secured loans through U.S. Treasury repurchase agreements that 
clear through the FICC or are offered by the Federal Reserve Bank of 
New York; and (iv) A limited amount of unsecured overnight deposits 
with eligible U.S. banks.
    For purposes of the 365-day liquidity requirement only, FHFA 
proposes to allow the Enterprises to augment the high quality liquid 
asset portfolio discussed above with cash inflows from pledging FICC-
eligible collateral using a repurchase agreement that clears through 
the FICC as a source of cash to meet the 365-day requirement.
    The enterprise-wide cumulative net cash flows includes all daily 
inflows and outflows of cash from any corporate source and use (as 
detailed below) and includes, but is not limited to, mortgage 
operations that use cash, like MBS payments to investors, repayment to 
servicers for advances of principal and interest (P&I), advancement of 
P&I to MBS investors, the daily purchase of loans, and any other uses 
of cash and excludes any cash inflows from expected unsecured debt 
issuance.
    As further described below, the measure of the enterprise-wide 
cumulative daily net cash flows is meant to include certain stress 
events experienced during the recent financial crisis, and to position 
the Enterprises to continue to provide mortgage market liquidity 
through such stresses. These stressed cash flow assumptions included in 
the proposed rule take into account the potential impact of 
idiosyncratic and market-wide shocks, including those that would result 
in: (1) A complete loss of the Enterprise's ability to issue unsecured 
debt during the relevant period; (2) An increased cash outflow 
associated with additional daily single-family and multifamily cash 
window or whole loan conduit purchases to support the mortgage market, 
particularly small lenders, during a crisis; (3) A decreased cash 
inflow due to the assumed increase in the number of borrowers who fail 
to make their scheduled principal, interest, tax, and insurance 
payments to the servicers under a stressed economic environment; (4) An 
increased cash outflow requirement to fund delinquent loan buyouts 
under a stressed economic environment; (5) An increased cash outflow 
based on the Enterprise's best estimate of the collateral needed to be 
posted to support FICC-related activities for the next month; (6) An 
increased cash outflow from unscheduled draws on committed liquidity 
facilities that the Enterprises have provided to their clients related 
to variable-rate demand bonds; and (7) A decreased cash inflow due to 
the assumed failure of the Enterprise's five top non-bank servicers by 
unpaid principal balance (UPB) to make timely principal, interest, and 
tax, and insurance payments to the Enterprises during the next month 
under a stressed economic environment. To determine decreased cash 
inflows and increased cash outflows due to higher numbers of delinquent 
borrowers and to higher loan buy-out from MBS trusts, the proposed rule 
would require the Enterprises to formulate their projections assuming 
stressed conditions corresponding to the more severe of FHFA's Dodd-
Frank Act Stress Test (DFAST) assumptions or other supervisory stress 
assumptions as ordered by FHFA.
    The proposed rule also sets forth two long-term liquidity and 
funding requirements. The objective of these two liquidity and funding 
requirements is to reduce unsecured debt rollover risk, ensure that the 
Enterprises maintain sufficient long-term unsecured debt so they do not 
have to sell less-liquid assets into distressed markets, incent the 
Enterprises to issue an appropriate amount of long-term unsecured debt, 
and incent the Enterprises to reduce the amount of less-liquid assets 
funded by unsecured debt held within the retained portfolio that are 
not eligible collateral for the FICC.
    The proposed rule, as described below, would require each 
Enterprise to report to FHFA its compliance with the four liquidity 
requirements daily, along with additional information regarding its 
liquidity position and assumptions as specified by FHFA. The 
Enterprises shall submit such reports at the close of each business 
day, treated as Day 0, reflecting the liquidity positions and other 
required information as of 6 p.m. EST on Day 0. Such reports shall 
include, at a minimum, the key stress

[[Page 1310]]

scenario assumptions discussed below, including a summary of the 
respective cash flows and other significant information and any other 
assumptions used to calculate the four liquidity requirements. In some 
cases, this may require supplemental reports to explain individual key 
stress cash flows, like the purchases of delinquent loans out of pools, 
the purchases of cash window and whole loan conduit loans and the 
reduced cash flows arising from increased numbers of delinquent 
borrowers not making scheduled principal, interest, tax, and insurance 
payments.
    The proposed rule would require daily minimum liquidity reporting 
about the short-term, intermediate-term and long-term liquidity and 
funding profile of the Enterprises to management, and to FHFA 
supervisory personnel. FHFA, by order, may require supplemental 
reporting. With this information, the Enterprise's management and 
supervisors would be better able to assess the Enterprise's ability to 
meet its projected liquidity needs during periods of liquidity stress; 
take appropriate actions to address liquidity needs; and, in situations 
of failure, implement an orderly resolution of the Enterprise.
    As noted above, for the 30-day requirement the proposed rule would 
require the Enterprises to maintain a high quality liquid asset 
portfolio sufficient in size to meet the highest cumulative net cash 
need, plus an additional $10 billion excess amount. FHFA recognizes 
that certain market circumstances, for example, may require that an 
Enterprise be provided flexibility to meet a reduced 30-day liquidity 
minimum in order to fund severe stress liquidity needs and to support 
continued liquidity in the secondary mortgage markets. Therefore, the 
proposed rule would provide for temporary reductions in minimum 
liquidity requirements to address economic or market stress conditions. 
Specifically, it would provide for FHFA to make a determination that, 
due to economic or market conditions, temporary adjustments to reduce 
the minimum liquidity requirements are appropriate to address those 
conditions. FHFA's exercise of this authority would further Enterprise 
public purposes in supporting secondary mortgage market liquidity 
consistent with safety and soundness.
    The proposed rule would also, as described below, establish a 
supervisory framework to address Enterprise liquidity shortfalls and 
non-compliance with the minimum liquidity requirements when an 
Enterprise's 30-day liquidity coverage metric falls below the $10 
billion excess requirement or any of the other three liquidity and 
funding requirements.
    Under the proposed rule, an Enterprise would be required to notify 
FHFA on any business day that any of the four liquidity requirements is 
not met, triggering a requirement for the Enterprise to submit a plan 
for approval to FHFA to achieve compliance, unless FHFA instructs 
otherwise. Alternatively, if FHFA determines that the Enterprise is 
otherwise non-compliant with the requirements of this part, FHFA may 
also require the Enterprise to submit a plan to achieve compliance. 
FHFA may take additional supervisory or enforcement action at its 
discretion to address Enterprise non-compliance.
    In addition, if FHFA determines that, due to economic, market, or 
Enterprise-specific circumstances, temporary modified Enterprise 
liquidity and funding requirements above those established under this 
part are necessary or appropriate for an Enterprise, a process would be 
available to modify the minimum requirements. In such an instance, FHFA 
will notify the Enterprise in writing of the proposed modified 
Enterprise liquidity and funding requirements and provide the 
Enterprise with an opportunity to respond before making a determination 
as set forth in proposed Sec.  1241.31.
    These procedures, which are described in further detail in this 
preamble, are intended to enable FHFA to monitor and respond 
appropriately to the particular economic, market, or Enterprise-
specific circumstances requiring an adjustment to the minimum liquidity 
requirements. FHFA invites public comment on all aspects of the 
proposed procedures for FHFA to respond timely and appropriately to 
address economic, market, Enterprise-specific, or other circumstances 
affecting Enterprise liquidity, safety and soundness, and ability to 
meet their public purposes.
    The proposed rule's four liquidity requirements would use 
Enterprise projections based on stressed market assumptions. While the 
short-term and intermediate-term liquidity requirements would impose 
specific stress assumptions, FHFA expects the Enterprises to maintain 
robust stress testing frameworks that incorporate additional scenarios, 
like lower rate environments that might trigger calling debt. The 
Enterprises should use these additional scenarios in conjunction with 
the proposed rule's liquidity requirements to appropriately determine 
their board and management liquidity and funding buffers. FHFA notes 
that the four proposed liquidity requirements are minimum requirements, 
and that organizations like the Enterprises that pose systemic risk to 
the U.S. financial system, or whose liquidity stress testing indicates 
a need for higher liquidity and funding buffers, may need to take 
additional steps beyond meeting the proposed rule's minimum 
requirements in order to meet supervisory expectations for safe and 
sound operation. Moreover, nothing in the proposed rule would limit the 
authority of FHFA under any other provision of law or regulation to 
take supervisory or enforcement actions, including actions to address 
unsafe or unsound practices or conditions, deficient liquidity levels, 
or violations of law.
    The proposed rule, once finalized, would be effective as of 
September 2021. FHFA requests comment on all aspects of the proposed 
rule, including comment on the specific issues raised throughout this 
preamble. FHFA requests that commenters provide detailed qualitative or 
quantitative analysis, as appropriate, as well as any relevant data and 
impact analysis to support their positions.

II. Liquidity and Funding Requirements

    As discussed above, the proposed rule would establish four 
quantitative liquidity requirements for the Enterprises, as well as 
certain qualitative requirements for risk management practices. The 
four quantitative liquidity requirements would be measured daily and 
supported by detailed management reporting:
    <bullet> A short-term 30-day liquidity requirement based on: (i) 
The Enterprise's highest cumulative daily net cash outflows over 30 
calendar days under certain specified stressed market assumptions, 
including a complete inability to issue debt; and (ii) An excess 
requirement in the amount of $10 billion;
    <bullet> An intermediate 365-day liquidity requirement based on the 
Enterprise's highest cumulative daily net cash outflows over 365 
calendar days under certain specified stressed market assumptions, 
including a complete inability of the Enterprises to issue debt;
    <bullet> A simple long-term liquidity and funding requirement based 
on the amount of an Enterprise's long-term unsecured debt divided by 
the amount of its less-liquid assets, as defined below; and
    <bullet> A second, model-based long-term liquidity and funding 
requirement based on an Enterprise's spread duration of its

[[Page 1311]]

unsecured debt divided by the spread duration of its retained portfolio 
assets.
    The short-term and intermediate-term requirements are cashflow 
based and will be discussed in this section II.A, while the two long-
term liquidity and funding requirements are calculated based on defined 
ratios discussed in section II.B.

A. Short-Term and Intermediate Term Liquidity Requirements

    The purpose of these cashflow-based requirements is to establish 
minimum short-term (discussed throughout as the 30-day requirement) and 
intermediate-term (discussed throughout as the 365-day requirement) 
liquidity requirements for the Enterprises. These two requirements are 
determined based on cash flows under a series of stress assumptions 
including, among other things, that the Enterprises are unable to 
access the debt markets for an extended period and, as a result, must 
fund their enterprise-wide net cash needs, including funding mortgage 
operations, with an appropriately sized portfolio of high quality 
liquid assets, as defined below.
1. High Quality Liquid Assets
    Given the lack of Enterprise access to the discount window at any 
Federal Reserve Bank and the need to provide mortgage market liquidity 
in a crisis, FHFA proposes to significantly limit those assets that 
qualify as high quality liquid assets for the liquidity portfolio under 
this proposed rule. As a result, FHFA proposes that high quality liquid 
assets be limited to cash held in a Federal Reserve bank account, U.S. 
Treasury securities, U.S. Treasury repurchase agreements where the 
Enterprise lends cash secured by U.S. Treasury securities cleared 
through the FICC or as offered by the Federal Reserve Bank of New York, 
and a limited amount of unsecured overnight bank deposits with eligible 
U.S. banks.
    To be included in high quality liquid assets, an asset would be 
required to be unencumbered as provided under the proposed rule. First, 
the asset must be free of legal, regulatory, contractual, or other 
restrictions on the ability of an Enterprise to monetize the asset. 
FHFA believes that, as a general matter, high quality liquid assets 
should only include assets that could be converted easily into cash. 
Second, the asset cannot have been pledged, explicitly or implicitly, 
to secure or provide credit-enhancement to any transaction.
a. Federal Reserve Bank Balances
    In the United States, Federal Reserve Banks are generally 
authorized under the Federal Reserve Act to maintain balances only for 
``depository institutions'' and for other limited types of 
organizations, like the Enterprises. Under the proposed rule, all 
balances the Enterprises maintain at a Federal Reserve Bank would be 
considered a high quality liquid asset.
b. U.S. Treasury Securities
    The proposed rule would include the fair market value of securities 
issued by, or unconditionally guaranteed as to the timely payment of 
principal and interest by, the U.S. Treasury. U.S. Treasury securities 
have exhibited high levels of liquidity even in times of extreme stress 
to the U.S. financial system, and typically are the securities that 
experience the most ``flight to quality'' when investors react in a 
crisis.
    FHFA proposes that U.S. Treasury securities qualify as a high 
quality liquid asset because they are easily and immediately 
convertible into cash during times of market stress. U.S. Treasury 
securities have active outright sale or repurchase agreement markets at 
all times with significant diversity in market participants as well as 
high volume. U.S. Treasury securities have exhibited this market-based 
liquidity characteristic historically, including evidence during the 
2008 financial crisis and the more recent 2020 COVID-19-related 
financial market stress. Even during these recent crises, U.S. Treasury 
securities demonstrated low bid-ask spreads, high trading volumes, a 
large and diverse number of market participants, and other factors. 
Diversity of U.S. Treasury security market participants, on both the 
buy and sell sides, is particularly important because it tends to 
reduce market concentration and is a key indicator that a market will 
remain liquid. Also, the presence of multiple committed market makers 
in U.S. Treasury securities is another sign that a market is liquid.
c. U.S. Treasury Repurchase Agreements Cleared Through the FICC
    The proposed rule would allow the Enterprises to treat certain 
secured loans backed by U.S. Treasury securities as highly liquid 
assets. Specifically, if the Enterprise lends cash secured by U.S. 
Treasury securities in a repurchase agreement cleared through the FICC 
(FICC Treasury repurchase agreements) then it may treat those assets as 
highly liquid. As the collateral backing investments in FICC Treasury 
repurchase agreements is legally allowed to be rehypothecated, the 
proposed rule assumes that the FICC Treasury repurchase agreements are 
fungible with U.S. Treasury securities and would be counted as such. 
The proposed rule limits any such investment in FICC Treasury 
repurchase agreements to those with a remaining maturity term no longer 
than the greater of: (i) 15 days; or (ii) The number of days until the 
next agency Uniform Mortgage Backed Security (UMBS) principal and 
interest payment date which is typically on, or the next business day 
after, the 25th day of the month.\5\
---------------------------------------------------------------------------

    \5\ Appropriate adjustment should be made for the number of days 
for non-UMBS MBS, such as MBS backed by adjustable rate mortgages 
and non-exchanged Freddie Mac Participation Certificates (PCs).
---------------------------------------------------------------------------

    Under the proposed rule, for collateral received in FICC Treasury 
repurchase agreements where the Enterprise has rehypothecation rights 
to withdraw the asset without remuneration at any time during a 30 
calendar-day stress period, such collateral if rehypothecated would be 
included in high quality liquid assets. If the collateral can be 
substituted with non-U.S. Treasury securities, then the Enterprises 
cannot count them as high quality liquid assets.
    In addition, the Federal Reserve Bank of New York offers a program 
whereby the Enterprises are eligible to lend cash supported by 
repurchase agreements backed by U.S. Treasury securities. If an 
Enterprise lends cash in a secured transaction through this Federal 
Reserve Bank of New York reverse repurchase agreement program, the 
proposed rule would allow the Enterprise to treat these as high quality 
liquid assets. The proposed rule would similarly limit the maturity of 
secured lending transactions to the greater of 15 days or the number of 
days until the next agency UMBS principal and interest payment date.
d. Overnight Unsecured Deposits in Eligible Banks
    The proposed rule would allow the Enterprises to include as high 
quality liquid assets a limited amount of unsecured overnight bank 
deposits provided they are held at a U.S. bank that is subject to 
quarterly reporting under the Federal Reserve System's FR Y-15 
reporting requirements and has at least $250 billion in assets. FHFA 
believes these overnight deposits can be readily transferred to the 
Enterprises' Federal Reserve bank accounts early the following morning, 
which can help the Enterprises better manage intra-day funding 
requirements. The proposed rule would limit such overnight deposits to 
a maximum of $10 billion and require that each Enterprise have adequate 
single-name counterparty credit risk limits in place.

[[Page 1312]]

    Question 1. Is allowing any amount of unsecured overnight deposits 
to qualify as highly liquid assets appropriate? If so, is the 
limitation to banks that are subject to the Federal Reserve Systems' FR 
Y-15 reporting requirements and have at least $250 billion in assets 
appropriate? Would greater or lesser restrictions be appropriate?
2. Non-Allowable Investments and Wrong-Way Risk
    The proposed rule intentionally limits Enterprise investment in 
non-mortgage related investments to those high quality liquid assets 
discussed above. In addition, certain assets that may be highly liquid 
under normal conditions could experience ``wrong-way'' risk and could 
become less liquid during a period of stress and would not be 
appropriate for consideration as high quality liquid assets. Wrong-way 
risk is commonly defined as the risk that occurs when exposure to a 
counterparty is adversely correlated with the credit quality of that 
counterparty.'' Securities issued or guaranteed by the Enterprises have 
been more prone to lose value and, as a result, become less liquid and 
lose value in times of liquidity stress due to the high correlation 
between the health of the Enterprises and the health of the housing 
markets generally. This correlation was evident during the 2008 
financial crisis, as most Enterprise unsecured debt and Enterprise MBS 
traded at significant discounts for a prolonged period. Because of this 
high potential for wrong-way risk, the proposed rule would exclude 
assets issued by the Enterprises from high quality liquid assets.
    FHFA understands that most securities issued and guaranteed by the 
Enterprises consistently trade in very large volumes and generally have 
been highly liquid. However, the Enterprises remain privately owned 
corporations, and their obligations do not have the explicit guarantee 
of the full faith and credit of the United States. The U.S. banking 
regulatory agencies have long held the view that obligations of the 
Enterprises should not be accorded the same treatment as obligations 
that carry the explicit guarantee of the U.S. government and, under the 
U.S. banking regulatory agencies' capital regulations, have currently 
and historically assigned a 20 percent risk weight to their obligations 
and guarantees, rather than the zero percent risk weight assigned to 
securities guaranteed by the full faith and credit of the United 
States.
    Similarly, the proposed rule does not allow the Enterprises to lend 
cash through repurchase agreements secured by agency MBS even through 
strong counterparties, like the FICC. Enterprise MBS, even short-term 
repurchase agreements secured by agency MBS, that may be highly liquid 
under normal conditions can experience wrong-way risk and could become 
less liquid during a period of stress. FHFA does not think it would be 
appropriate to consider agency MBS, or repurchase agreements backed by 
agency MBS, to be included as a high quality liquid asset for the 30-
day liquidity requirement for the Enterprises.
    Question 2. Does the proposed exclusion of repurchase agreements 
secured by agency MBS appropriately address the concerns expressed 
above? Are there other ways that FHFA could address those concerns, 
including wrong-way risk? If so, FHFA encourages commenters to provide 
historical evidence, including evidence during recent periods of market 
liquidity stress, of low bid-ask spreads, high trading volumes, a large 
and diverse number of market participants, and other factors.
3. Operational Requirements for High Quality Liquid Assets
    Under the proposed rule, to be eligible to be included as a high 
quality liquid asset, an asset would need to meet the following 
operational requirements. These operational requirements are intended 
to better ensure that an Enterprise's high quality liquid assets can in 
fact be liquidated in times of stress. Several of these requirements 
relate to the monetization of an asset, by which FHFA means the receipt 
of funds from the outright sale of an asset or from the transfer of an 
asset pursuant to a repurchase agreement.
    First, an Enterprise would be required to have the operational 
capability to monetize the high quality liquid assets. This capability 
would be demonstrated by: (1) Implementing and maintaining appropriate 
procedures and systems to monetize the asset at any time in accordance 
with relevant standard settlement periods and procedures; and (2) 
Periodically monetizing a sample of high quality liquid asset that 
reasonably reflects the composition of the covered company's total high 
quality liquid asset portfolio, including with respect to asset type, 
maturity, and counterparty characteristics. This requirement is 
designed to ensure an Enterprise's access to the market, the 
effectiveness of its processes for monetization, and the availability 
of the assets for monetization and to minimize the risk of negative 
signaling during a period of actual stress. FHFA would monitor the 
procedures, systems, and periodic sample liquidations through its 
supervisory process.
    Second, an Enterprise would be required to implement policies that 
require all high quality liquid assets to be under the control of the 
management function of the Enterprise that is charged with managing 
liquidity risk. To do so, an Enterprise would be required either to 
segregate the assets from other assets, with the sole intent to use 
them as a source of liquidity, or to demonstrate its ability to 
monetize the assets and have the resulting funds available to the 
liquidity risk management function without conflicting with another 
business or risk management strategy. This requirement is intended to 
ensure that a central function within the Enterprise has the authority 
and capability to liquidate high quality liquid asset to meet its 
obligations in times of stress without exposing the Enterprise to risks 
associated with specific transactions and structures. There were 
instances at specific firms during the 2008 financial crisis where 
unencumbered assets of the firms were not available to meet liquidity 
demands because the firms' treasury functions were restricted or did 
not have access to such assets.
    Third, an Enterprise would be required to implement and maintain 
policies and procedures that determine the composition of the assets in 
its high quality liquid asset portfolio on a daily basis by: (1) 
Identifying where its high quality liquid assets are held by legal 
entity, geographical location, currency, custodial or bank account, and 
other relevant identifying factors; and (2) Determining that the assets 
included as high quality liquid assets for liquidity compliance 
continue to qualify as high quality liquid assets under the proposed 
rule.
    FHFA notes that assets that meet the criteria of high quality 
liquid assets and are held by an Enterprise as ``trading'', 
``available-for-sale'', or ``held-to-maturity'' can be included as high 
quality liquid assets, regardless of such designations.
4. Cash Flows
    The proposed rule would require the Enterprises to meet the 
following cash flow-based metrics by holding high quality liquid assets 
(as defined above) that equal or exceed, under the seven stressed cash 
flow scenarios described below, the following:
    <bullet> 30-day Requirement. The sum of: (i) The Highest Cumulative 
Daily Net Cash Outflows over 30 calendar days under certain specified 
stressed market assumptions, including a complete inability of the 
Enterprises to issue

[[Page 1313]]

unsecured debt; and (ii) $10 billion (i.e., the Daily Excess 
Requirement).
    <bullet> 365-day Requirement. The Highest Cumulative Daily Net Cash 
Outflows over 365 days, including cash inflows from possible (though 
not scheduled) FICC MBS repurchase transactions where the Enterprise 
pledges its FICC-eligible collateral (assuming a 15 percent haircut) to 
raise cash on its worst cumulative net cash outflow day. The proposed 
rule assumes a conservative haircut of 15 percent given FHFA's wrong-
way risk concerns. The proposed rule limits this ability to pledge 
FICC-eligible MBS collateral solely for purposes of meeting the 365-day 
requirement; such collateral is not eligible for purposes of meeting 
the 30-day liquidity requirement. Moreover, the proposed rule does not 
include non-FICC-eligible collateral as eligible for meeting any of the 
liquidity requirements.
    To determine the 30-day requirement as of calculation date, the 
proposed rule would require an Enterprise to calculate its highest 
stressed cumulative net cash outflow amount for the next 30 calendar 
days following the calculation date, thereby establishing the dollar 
value that must be offset by the high quality liquid asset portfolio. 
Similarly, to determine the 365-day requirement as of calculation date, 
the proposed rule would require an Enterprise to calculate its highest 
stressed cumulative net cash outflow amount for the next 365 calendar 
days following the calculation date, thereby establishing the dollar 
value that must be offset by the high quality liquid asset portfolio 
combined with cash inflows from possible (though not scheduled) secured 
borrowings using FICC cleared repurchase transactions where the 
Enterprise raises cash by pledging its FICC-eligible collateral 
(assuming a 15 percent haircut) on its worst cumulative net cash 
outflow day.
    Under the proposed rule, the highest cumulative daily net cash 
outflow amount would be the dollar amount on the day within a 30 
calendar-day and 365-day stress period that has the highest amount of 
net cumulative cash outflows, respectively. The FHFA believes that 
using the highest cumulative daily calculation (rather than using total 
cash outflows over a 30 calendar-day or 365-day stress period) is 
necessary because it takes into account potential timing mismatches 
between an Enterprise's outflows and inflows, that is, the risk that an 
Enterprise could have a substantial amount of contractual inflows late 
in a 30 calendar-day stress period while also having substantial 
outflows earlier in the same period. Such mismatches could threaten the 
liquidity of the Enterprise. By requiring the recognition of the 
highest net cumulative outflow day of a particular 30 calendar-day 
stress period and a particular 365-day stress period, FHFA believes 
that the proposed liquidity requirements would better capture an 
Enterprise's liquidity risk and help foster more sound liquidity 
management.
    The proposed rule would require that the high quality liquid asset 
portfolio be sufficient to fund all enterprise-wide net cash flows, 
which includes all corporate daily inflows and outflows of cash from 
whatever source and includes, but is not limited to, mortgage 
operations that use cash such as MBS payments to investors, 
reimbursement of servicer advances of P&I payments to the MBS trusts, 
the continued purchase of loans through the cash window or whole loan 
conduit, increases in collateral requirements arising from Enterprise 
derivative positions, and other uses of corporate cash.
    Sources of cash include principal and interest payments from 
servicers that include guaranty fees from the single-family business, 
including the Temporary Payroll Tax Cut Continuation Act of 2011 fees. 
Other sources of cash, like existing To-be-announced (TBA) contracts in 
place as of 6 p.m. EST on Day 0, are assumed to be valid and represent 
cash inflows on the contract settlement date. Other sources of cash for 
the 365-day liquidity requirement include the borrowing of cash secured 
by FICC-eligible securities post 15 percent haircut. Less-liquid 
assets, like non-performing loans and re-performing loans, are not 
considered sources of cash unless the assets have been sold and are 
awaiting settlement. In this case, the Enterprise may assume that the 
cash inflow occurs on the expected settlement date.
    With respect to any MBS trust-related cash flows, an Enterprise 
must include, at a minimum, the net corporate cash flows to and from 
the MBS trust(s). The proposed rule stresses the expected corporate 
cash flows by excluding expected cash inflows from expected future debt 
issuance (with an exception for Enterprise debt issued but not yet 
settled, described below), and by imposing six other stress assumptions 
that increase cash outflows or limit cash inflows (see discussion 
below).
    The proposed rule defines ``Daily Net Cash Flows'' to mean, for any 
day, the total cash outflows minus the total cash inflows for that day. 
The proposed rule further defines the ``Cumulative Daily Net Cash 
Outflows'' to mean, for any day, the sum of the Daily Net Cash Flows 
for each day in the period up through and including the measurement 
day. The proposed rule further defines the ``Highest Cumulative Daily 
Net Cash Outflows'' to mean, with respect to either the 30-day or 365-
day metric, the maximum Cumulative Daily Net Cash Outflows amount over 
the respective period, see the 30-day example in Table 1 below.

                   Table 1--Example Determination of Highest Daily Cumulative Net Cash Outflow
                                                      [$B]
----------------------------------------------------------------------------------------------------------------
                                                                              Daily net cash   Daily cumulative
                     Day                       Cash outflows   Cash inflows       outflow      net cash outflow
----------------------------------------------------------------------------------------------------------------
Day 1.......................................            $100             $90             $10                 $10
Day 2.......................................              40              45             (5)                   5
Day 3.......................................              25              30             (5)  ..................
Day 4.......................................              50              40              10                  10
Day 5.......................................              90              70              20                  30
Day 6.......................................              60              60  ..............                  30
Day 7.......................................              40              50            (10)                  20
Day 8.......................................              60              50              10                  30
Day 9.......................................              50              50  ..............                  30
Day 10......................................              25              30             (5)                  25
Day 11......................................              30              25               5                  30
Day 12......................................              40              40  ..............                  30
Day 13......................................              40              75            (35)                 (5)

[[Page 1314]]

 
Day 14......................................              40              40  ..............                 (5)
Day 15......................................              20              15               5  ..................
Day 16......................................              45              25              20                  20
Day 17......................................              10              20            (10)                  10
Day 18......................................              90             150            (60)                (50)
Day 19......................................              40              35               5                (45)
Day 20......................................              50              15              35                (10)
Day 21......................................              30              20              10  ..................
Day 22......................................              30              10              20                  20
Day 23......................................              10              20            (10)                  10
Day 24......................................              15              15  ..............                  10
Day 25......................................             140              70              70                  80
Day 26......................................              20              25             (5)                  75
Day 27......................................              40              45             (5)                  70
Day 28......................................              10              10  ..............                  70
Day 29......................................              30              30  ..............                  70
Day 30......................................              25              30             (5)                  65
----------------------------------------------------------------------------------------------------------------

    Table 1 illustrates the determination of the total net cash outflow 
amount using hypothetical daily outflow and inflow calculations for a 
given 30 calendar-day stress period. Based on the example provided, the 
peak net cash need would occur on Day 25, resulting in a Highest Daily 
Cumulative Net Cash Outflow of $80 billion.
    The proposed rule does not permit an Enterprise to double count 
items in this computation. For example, if the fair market value of an 
asset is included as a part of the highly liquid asset portfolio, such 
asset may not also be counted as a cash inflow on its maturity date.
    Question 3. Does the method FHFA is proposing for cumulative net 
cash outflows appropriately capture the potential mismatch between the 
timing of inflows and outflows under the 30 calendar-day stress period? 
Why or why not?
5. Daily Excess Requirement
    For purposes of the 30-day requirement, the proposed rule would 
require that the Enterprises must maintain a minimum daily excess 
requirement of at least $10 billion for each day within the first 30 
days (aka the Daily Excess Requirement). The purpose of this Daily 
Excess Requirement is to address the possibility of errors and other 
unforeseen operational errors.
    Question 4. For the 30-day requirement, does the proposed $10 
billion Daily Excess Requirement adequately address possible 
forecasting errors and other residual liquidity risks? Should FHFA 
consider a larger Daily Excess Requirement than $10 billion? A smaller 
amount?
    For purposes of the 365-day requirement, the proposed rule would 
require no minimum Daily Excess Requirement. FHFA does not propose a 
daily excess requirement for the 365-day requirement because of the 
longer-term nature of the requirement.
    Question 5. For the 365-day requirement, should FHFA consider a 
Daily Excess Requirement like the one for the 30-day requirement? If 
so, what would be an appropriate Daily Excess Requirement for the 365-
day minimum liquidity requirement?
6. Stressed Cash Flow Scenarios
    As noted above, the proposed rule would require each Enterprise to 
forecast expected corporate cash outflows and expected cash inflows 
from all sources. As described below, the proposed rule would further 
require that the measure of the enterprise-wide cumulative net cash 
flows reflects the impact of the stress events.
    Given the importance of the Enterprises as key providers of 
mortgage market liquidity, the proposed rule would assume seven 
stressed cash outflow and inflow assumptions. These stressed cash flow 
assumptions included in the proposed rule take into account the 
potential impact of idiosyncratic and market-wide shocks, including 
those that would result in:
    (1) A complete loss of Enterprise ability to issue unsecured debt 
during the relevant period (see section below entitled ``Complete Loss 
of Ability to Issue Unsecured Debt'');
    (2) An increased cash outflow associated with additional daily 
single-family and multifamily cash window or whole loan conduit 
purchases to support the mortgage market, particularly small lenders, 
during a crisis (see section below entitled ``Cash Window or Whole Loan 
Conduit Purchases'');
    (3) A decreased cash inflow due to the assumed increase in the 
number of borrowers who fail to make their scheduled principal, 
interest, tax, and insurance payments to the servicers under a stressed 
economic environment (see section entitled ``Borrower Scheduled 
Principal, Interest, Tax, and Insurance Remittances'');
    (4) An increased cash outflow requirement to fund delinquent loan 
buyouts under a stressed economic environment (see section entitled 
``Delinquent Loan Buyouts from MBS Trusts'');
    (5) An increased cash outflow based on the Enterprise's best 
estimate of the collateral it will be required to post with the FICC 
for the next month (see section entitled ``FICC Collateral Needs'');
    (6) An increased cash outflow from unscheduled draws on committed 
liquidity facilities that the Enterprises have provided to their 
clients related to variable-rate demand bonds (see section entitled 
``Liquidity Facility for Variable-Rate Demand Bonds''); and
    (7) A decreased cash inflow due to the assumed failure of the 
Enterprise's five top non-bank servicers by UPB to make timely 
principal, interest, tax, and insurance payments to the Enterprises 
during the next month under a stressed economic environment (see 
section entitled ``Non-Bank Seller/Servicer Shortfalls'').
    To determine decreased cash inflows and increased cash outflows due 
to higher numbers of delinquent borrowers and to higher loan buy-out 
from MBS trusts, the proposed rule would require

[[Page 1315]]

the Enterprises to formulate their projections assuming stressed 
conditions corresponding to the more severe of FHFA's DFAST assumptions 
or other supervisory assumptions as ordered by FHFA.
a. Complete Loss of Ability To Issue Unsecured Debt
    The proposed rule, specifically the 30-day and 365-day liquidity 
requirements, would require the Enterprises to assume that they could 
not issue any new unsecured debt and receive the proceeds. The proposed 
rule would allow the Enterprises to include cash inflows from unsecured 
debt already traded but not yet settled on the appropriate settlement 
date.
    FHFA recognizes that each Enterprise has the contractual right to 
issue discount notes to their respective MBS trusts in exchange for 
cash. Most MBS trusts receive P&I and other payments in the form of 
cash from the seller/servicers on or around the 18th of each month and 
have to pay such principal and interest to investors on the 25th of 
each month. The proposed rule would not include the cash inflows from 
such sales of discount notes to their respective MBS trusts. If an 
Enterprise needed to issue discount notes to an MBS trust to raise cash 
in an unexpected liquidity event, it could legally do so but FHFA does 
not expect the Enterprise to rely on such funds in the normal course of 
liquidity risk management.
b. Cash Window or Whole Loan Conduit Purchases
    The proposed rule also requires that the Enterprises maintain a 
sufficient portfolio of high quality liquid assets to continue to fund 
the purchase of single-family loans through the Cash Window or Whole 
Loan Conduit (CW/WLC) during a short-term crisis of up to 60 days 
initially, and then 30 days for the remainder of the year. In essence, 
this stress assumes that the Enterprises cannot sell forward or 
securitize the single family mortgage loans purchased through the CW/
WLC for the next 60 days during the most acute period of assumed 
stress, and thereafter can only sell such loans after holding them for 
a minimum of 30 days.
    Similarly, the proposed rule would require that the Enterprises 
maintain a sufficient liquidity portfolio to fund the purchase of 
multifamily loans during a market crisis for six months. Assuming that 
an Enterprise can demonstrate that it historically has securitized and 
sold multifamily loans within six months, the proposed 365-day 
requirement would allow the Enterprise to assume that it can sell 
multifamily loans six months after it purchases them through the 
multifamily cash window. For example, if an Enterprise can document 
that over the past 12 months, the average time it took to securitize 
multifamily loans into securities was six months, then FHFA would 
consider that adequate support. FHFA examiners would validate that 
there is adequate documentation to support such an assumption. FHFA 
notes that Fannie Mae's multifamily program uses guarantor swap 
transactions for the purchase of every multifamily loan and thus does 
not purchase multifamily loans with cash. If that Fannie Mae business 
practice were to change and multifamily loans were purchased for cash, 
then these cash outflows would need to be included in the 30-day and 
365-day cash forecasts.
    While the proposed rule would allow TBA contracts to count as cash 
inflows at the contracted settlement dates, an additional stress for 
the 30-day and 365-day requirements is that forecasted purchases of 
loans cannot be assumed to be forward sold in the TBA market, nor can 
they be assumed to be securitized and sold, until day 61. As a result, 
the proposed rule would require that the Enterprises must have a high 
quality liquid asset portfolio large enough to prefund the first 60 
days of cash window or whole loan conduit purchases during a market 
crisis.
    FHFA recognizes that TBA contracts are a useful risk management 
tool that allows the Enterprises to minimize the risk arising from 
purchasing loans through the cash window and whole loan conduit. The 
proposed rule would allow cash inflows from existing TBA contracts 
subject to the following limitations as follows:
    1. An Enterprise will only be allowed to include expected cash 
inflows from existing TBA contracts in place on Day 0 as of 6 p.m. EST 
and an Enterprise will not be allowed to assume cash inflows arising 
from forecasted (as opposed to existing) TBA contracts for the 30-day 
and 365-day forecast periods.
    2. Existing TBA contracts in excess of the amount needed to 
minimize the risk of existing loans purchased through the cash window 
or whole loan conduit or existing commitments to buy loans will not 
count as cash inflows. FHFA expects that Enterprises will only enter 
into TBA contracts that offset existing loan purchases or forward 
commitments to buy loans.
    3. To reduce the risk that the associated cash inflow from the TBA 
contract is not received due to counterparty issues, the proposed rule 
only permits cash inflows from TBA contracts cleared through the FICC. 
The proposed rule does not allow the Enterprises to include cash 
inflows from TBA contracts not cleared through the FICC.
    4. Enterprises cannot include cash inflows from the securitization 
and sale of loans that have an associated TBA contract as this would 
double count the cash inflows.
    Question 6. Should FHFA allow the Enterprises to consider 
additional TBA contracts as cash inflows on the settlement date or just 
those TBA contracts cleared through the FICC?
    Question 7. Should FHFA not allow the Enterprises to consider any 
existing TBA contracts as cash inflows on the settlement date?
    After Day 30, the proposed rule permits the Enterprises to assume 
they continue to fund their forecasted 365-day single-family cash 
window and whole loan conduit needs with a less conservative 
securitization and sale assumption. The proposed rule assumes that 
after the first 30 days, forecasted purchases of single-family loans 
can be securitized and sold after holding for only 30 days.
    For example, the Enterprises may assume that single family loans 
scheduled to be purchased on:
    <bullet> Day 1 can be securitized and sold on day 61;
    <bullet> Day 2 can be securitized and sold on day 61;
    <bullet> Day 31 can be securitized and sold on day 61;
    <bullet> Day 45 can be securitized and sold on day 75; and
    <bullet> Day 61 can be securitized and sold on day 91.

For delivered single-family loans owned by an Enterprise at close of 
business on Day 0, the proposed rule would allow that an Enterprise can 
include cash inflows from the sale and securitization of such single-
family loans on Day 61, assuming that the Enterprise did not already 
assume a corresponding cash inflow from a matched TBA position on the 
settlement date.
    For non-delivered single-family loans where the Enterprise has a 
commitment to buy the loan as of close of business on Day 0, the 
proposed rule would require that the cash outflow be assumed for the 
contracted settlement date, and that the cash inflow associated with a 
corresponding TBA contract settlement date for that commitment to sell 
provided that if no such TBA contract exists at the close of business 
on Day 0, then the earliest cash inflow is Day 61 based upon its 
securitization and sale.
    For multifamily loans, the proposed rule would require a liquidity 
portfolio

[[Page 1316]]

large enough to fund the first three months of multifamily loan 
purchases through the cash window. The proposed rule assumes that the 
Enterprises will forecast expected multifamily loan cash purchases for 
the entire 365-day period.
    For multifamily loans, the typical holding period prior to 
securitization is approximately three to four months but for some 
multifamily loans it is much longer. If the Enterprises can demonstrate 
that they can securitize and sell all of their multifamily loans within 
180 days, the proposed rule would allow them to assume that multifamily 
loans purchased on:
    <bullet> Day 1 can be securitized and sold on day 181;
    <bullet> Day 31 can be securitized and sold on day 211; and
    <bullet> Day 61 can be securitized and sold on day 241.

For existing multifamily loans delivered and owned by an Enterprise at 
the close of business on Day 0, the proposed rule would allow an 
Enterprise to include cash inflows from the sale and securitization of 
such multifamily loans on Day 91, which reflects a simplifying 
assumption that the weighted average time that the Enterprise held the 
existing multifamily loans in the cash window portfolio at the close of 
business on Day 0 is approximately 90 days.
    Question 8. For the 365-day requirement, should the proposed rule 
allow for a shorter or longer time period than six-month assumption for 
the securitization and sale of multifamily loans? Should the proposed 
rule consider an alternative cash inflow process arising from the 
securitization and sale of multifamily loans?
c. Borrower Scheduled Principal, Interest, Tax, and Insurance 
Remittances
    The proposed rule would require that the 30-day and 365-day 
requirements have an additional cash inflow stress that assumes that an 
increased number of borrowers fail to make scheduled principal, 
interest, tax, and insurance payments consistent with the specified 
stress scenario. These reduced cash inflows from borrowers would 
increase cash outflows needed to be made by the Enterprises to the MBS 
investors and to other entities when the servicers are not required to 
advance full scheduled payments to the Enterprises, including where 
servicers are under an ``actual'' \6\ contractual remittance obligation 
to the Enterprises or are otherwise not required to make such advances. 
FHFA proposes that the Enterprises estimate these cash outflows based 
on the greater of the cash outflows estimated using: (1) The most 
recent DFAST scenario assumptions and resulting delinquencies: or (2) 
Such other scenario(s) prescribed by order of FHFA. Effectively this 
stress scenario increases the Enterprises' cash outflows in months one 
through 12 and so it affects both the 30-day and the 365-day 
requirement.
---------------------------------------------------------------------------

    \6\ The Enterprises have contracts with servicers to remit 
borrower principal, interest, tax, and insurance payments. Some of 
these contracts allow the servicers to remit only the actual 
principal or actual interest payments made by the borrowers. In 
cases where the servicer is not obligated to advance missed borrower 
payments, the Enterprises must make the payment of principal and 
interest to the MBS investor.
---------------------------------------------------------------------------

d. Delinquent Loan Buyouts From MBS Trusts
    The proposed rule would require that the Enterprises must fund 
delinquent single-family loan buyouts from MBS pools assuming an 
increase in delinquent mortgage loans under an assumed stress scenario 
prescribed by FHFA under its DFAST scenarios or other stress scenarios 
by order. The objective is to ensure that the Enterprises have a 
liquidity portfolio large enough to continue to fund the purchase of 
delinquent loans from MBS Trusts in a stress scenario. FHFA proposes 
that the Enterprises estimate these cash outflows based on the greater 
of the cash outflows estimated using: (1) The most recent DFAST 
scenario assumptions and resulting delinquencies: or (2) Such other 
stress scenario(s) prescribed by FHFA order.
    For the proposed 30-day and 365-day requirements, the Enterprises 
must project the cash outflows arising from delinquent loan buyouts 
over the relevant period assuming the most recent DFAST scenario 
assumptions and resulting delinquencies or such other stress 
scenario(s) prescribed by FHFA order. In June 2020, FHFA directed the 
Enterprises to use the greater of DFAST scenarios or more recent 
forbearance history if more stressful. Provided that the Enterprises 
can adequately support the following assumption, the proposed rule 
would allow the Enterprise to forecast cash inflows based on sales of 
reperforming loans that were purchased from pools but only after 180 
days of re-performance history which would allow them to be readily 
securitized into MBS assets eligible as collateral for funding 
transactions cleared through the FICC. For example, if an Enterprise 
can document that over the past 12 months, the average time it took to 
securitize reperforming loans into securities was six months, then FHFA 
would consider that adequate support. The FHFA supervisory team would 
validate that there is adequate documentation to support such an 
assumption.
e. FICC Collateral Needs
    The proposed rule would require that the Enterprises estimate the 
cash outflow needed to prefund its expected FICC collateral requirement 
for the next month. The Enterprises heavily rely on the FICC to conduct 
their mortgage purchase operations and FICC access to clear trades on 
the appropriate settlement dates, as well as to support U.S. Treasury 
functions like the purchase of Treasury repurchase agreements through 
the FICC. The FICC, specifically its capped contingency liquidity 
facility (CCLF) requires a minimum amount of collateral be posted each 
month with the FICC. The CCLF collateral requirement has two 
components, that is, a Mortgage Backed Securities Division within the 
FICC component arising from the Enterprises TBA clearing activity and a 
Government Securities Division within the FICC component arising from 
the Enterprises FICC-cleared repo activity. The proposed rule would 
require that an Enterprise's liquidity portfolio be large enough to 
accommodate a cash outflow on Day 1 of the forecast equal to the CCLF 
collateral requirement for the next month. The FICC provides the 
Enterprises with the collateral requirement each month based on the 
Enterprise's use of the FICC.
    The proposed rule would require that the Enterprises assume that 
there is a 100 percent cash outflow for the expected next month's FICC 
collateral requirement on Day 1.
f. Liquidity Facility for Variable-Rate Demand Bonds
    The proposed rule would require that the Enterprises assume that 
all contingent liabilities, and associated cashflows, related to the 
Enterprises' variable-rate demand bonds (VRDBs) are treated as cash 
outflows on Day 1.
    As part of the Enterprises' guarantee arrangements pertaining to 
certain multifamily housing revenue bonds and securities backed by 
multifamily housing revenue bonds, in the past the Enterprises provided 
commitments to advance funds, commonly referred to as ``liquidity 
guarantees.'' These liquidity guarantees require the Enterprises to 
advance funds to third parties that enable them to repurchase tendered 
bonds or securities that cannot be remarketed during the weekly auction 
process. Given such weekly auctions, these multifamily customers are 
likely to need backstop funding in a short-term stress environment, 
such as those

[[Page 1317]]

experienced during the 2008 financial crisis. During that period, some 
VRDB auctions failed and the Enterprises had to step in and provide 
temporary liquidity under those guarantee arrangements.
    The proposed rule would require that the Enterprise assume that 
there is a cash outflow equal to 100 percent of its existing liquidity 
facilities related to variable-rate demand bonds on Day 1.
g. Non-Bank Seller/Servicer Shortfalls
    The proposed rule would require that the Enterprises must assume 
that their five largest non-bank single-family seller/servicers (i.e., 
those seller/servicers that do not have funding from depositors) by UPB 
fail to make scheduled principal, interest, tax, and insurance payments 
on the next scheduled remittance date, (i.e., usually by the 18th of 
the month). Effectively, this reduces the expected cash inflows from 
the top-five non-bank seller/servicers and requires that the 
Enterprises be able to fund such a short-fall using proceeds from the 
high quality liquid asset portfolio. Experience with the past financial 
crisis and in the recent COVID-19-related stress suggest that non-bank 
seller/servicers can experience acute financial stress in periods of 
tight liquidity, which could impose significant losses or delays on 
Enterprise receipt of P&I and other payments with respect to acquired 
mortgage loans. The proposed rule would require the Enterprises to hold 
sufficient high quality liquid assets to ensure that one or more 
failures by these counterparties would not threaten the Enterprises' 
ability to support housing finance markets through such periods. This 
assumption applies only to the first month, as the servicing for these 
five non-bank servicers is assumed to be resolved in the second month. 
The proposed rule would allow the Enterprises to assume that such 
principal, interest, tax, and insurance is repaid by the original 
seller/servicer on day 61.
    Question 9. For the 365-day requirement, should the proposed rule 
allow for the cash inflow on Day 61 related to the repayment by these 
five non-bank seller/servicers? Should the proposed rule assume a 
longer period before repayment?
    Question 10. FHFA solicits commenters' views on the seven stress 
scenarios discussed above, their proposed cash outflows and inflows, 
and the associated underlying assumptions for the proposed treatment. 
Are there specific cash inflow or outflow assumptions for other types 
of transactions that have not been included, but should be? If so, 
please specify the types of transactions and the applicable inflow or 
outflow rates that should be applied and the reasons for doing so.
7. Unsecured Callable Debt
    The proposed rule does not require the Enterprises to maintain a 
liquidity portfolio large enough to fund the cash outflows associated 
with exercising the call option on all unsecured callable debt that was 
in-the-money at the close of business on Day 0. Because the Enterprises 
have the right to call, but not the obligation to call, certain 
callable debt instruments, the proposed rule would allow the 
Enterprises to assume that the cash outflow is at maturity of the 
callable debt and not the next call date.
    During the 2008 financial crisis, the Enterprises did not 
efficiently exercise their right to call debt as the debt markets were 
not liquid enough for them to replace that debt with similar maturity 
debt instruments. Similarly, in March 2020 during the COVID-19-related 
financial market stress, the Enterprises did not exercise their right 
to call debt efficiently because they could not reissue similar longer-
term debt. Subsequently, after the March 2020 COVID-19 stress period, 
both Enterprises were able to exercise calls on the next available date 
and replace that called debt with similar callable debt or fixed rate 
debt at favorable terms.
    Question 11. FHFA solicits commenters' views on the proposed 
treatment for Enterprise callable debt. Specifically, what are 
commenters' views on the proposed provisions that would allow the 
Enterprises to not call their unsecured callable debt even if it was 
in-the-money at the close of business on Day 0?
8. Changes in Financial Condition
    Certain contractual clauses in derivatives and other transaction 
documents, such as material adverse change clauses and downgrade 
triggers, are aimed at capturing changes in the Enterprises financial 
condition and, if triggered, would require an Enterprise to post more 
collateral or accelerate demand features in certain obligations that 
require collateral.
    The proposed rule would not require an Enterprise to count as an 
outflow any additional amounts that the Enterprise would need to post 
or fund as additional collateral under a contract as a result of a 
change in its financial condition. If the proposed rule did require 
such an assumption, an Enterprise could calculate this outflow amount 
by evaluating the terms of such contracts and calculating any 
incremental additional collateral that would need to be posted as a 
result of the triggering of clauses tied to a ratings downgrade or 
similar event, or change in the Enterprise's financial condition.
    Question 12. Should the proposed rule require that the Enterprises 
hold high quality liquid assets to cover potential increases in 
collateral needed assuming a significant change in their financial 
condition?

B. Long-Term Liquidity and Funding Requirements

1. Background
    The 2008 financial crisis exposed the vulnerability of the 
Enterprises to liquidity shocks. For example, before the crisis, the 
Enterprises and many banking organizations lacked robust liquidity risk 
management metrics and relied excessively on short-term wholesale 
funding to support less-liquid assets. In addition, the Enterprises and 
many banks did not sufficiently plan for longer-term liquidity risks, 
and the risk management and control functions of the Enterprises failed 
to challenge such decisions or sufficiently plan for possible 
disruptions to the Enterprises regular sources of funding. Instead, the 
risk management and control functions reacted only after demand for 
longer term agency unsecured debt evaporated.
    During the crisis, the Enterprises and many banking organizations 
experienced severe contractions in the supply of funding. As access to 
longer-term funding became limited, many in the financial markets were 
forced to sell and as a result certain asset prices, including for 
private label securities (PLS), fell significantly. When prices fell, 
the Enterprises and many banking organizations faced the possibility of 
significant capital losses and failure. The threat this presented to 
the U.S. financial system caused the U.S. government to provide 
significant levels of support to the Enterprises and many U.S. banks to 
maintain global financial stability. This experience demonstrated a 
need to address these shortcomings at the Enterprises and banking 
organizations and to implement a more rigorous approach to identifying, 
measuring, monitoring, and limiting reliance on short-term sources of 
funding that results in additional debt rollover risk.
    Since the 2008 financial crisis, FHFA (as noted above) has 
developed qualitative standards focused on strengthening the 
Enterprises' overall risk management, liquidity positions, and 
liquidity and funding risk

[[Page 1318]]

management. By improving the Enterprises' ability to absorb shocks 
arising from financial and economic stress, these measures, in turn, 
promote a more resilient mortgage funding market and U.S. financial 
system.
    FHFA has supervisory guidance to address the risks arising from 
excessive reliance on short-term funding, such as short-term discount 
notes, that increases rollover risk both before and after the 2008 
financial crisis. In 2009, for example, FHFA issued a supervisory 
letter that required, among other things, that the Enterprises develop 
capabilities to measure cash inflows and outflows daily for one year.
    As previously discussed, AB 2018-06 incorporates liquidity risk 
management elements consistent with Basel Liquidity Principles. Under 
the AB, FHFA expects an Enterprise's measurement of liquidity to 
include metrics for intraday liquidity, short-term cash needs (e.g., 30 
days), access to collateral to manage cash needs over the medium term 
(e.g., 365 days), and a general congruence between the maturity 
profiles of the assets and liabilities. FHFA also encouraged the 
Enterprise to consider common industry practices and regulatory 
standards.
    The proposed long-term liquidity and funding requirements would 
complement the proposed short-term 30-day and intermediate-term 365-day 
requirements. For example, these two long-term liquidity and funding 
requirements complement the 30-day requirement's goal of improving 
resilience to short-term economic and financial stress by focusing on 
the stability of an Enterprise's structural funding profile over a 
longer, one-year time horizon. In a financial crisis, financial 
institutions like the Enterprises during the crisis that lack longer-
term stable funding sources may be forced by creditors to monetize 
assets at the same time, driving down asset prices, like those price 
declines in the PLS market and commercial mortgage backed securities 
market in the 2008 financial crisis. The proposed rule would mitigate 
such risks by directly increasing the funding resilience of the 
Enterprises, thereby indirectly increasing the overall resilience of 
the U.S. financial system.
    The proposed two longer-term requirements would also provide a 
standardized means for measuring the stability of an Enterprise's 
funding structure, promote greater comparability of funding structures 
across the Enterprises, improve transparency, and increase market 
discipline through the proposed rule's monthly public disclosure 
requirements.
    Given the lack of retail and wholesale deposits and the relative 
simplicity of the Enterprises' funding structure, FHFA proposes a 
simplified approach for its first long-term liquidity and funding 
requirement, which compares the amount of an Enterprise's long-term 
unsecured debt (i.e., longer than one year to maturity) to the amount 
of its less-liquid assets in the retained portfolio. Under the proposed 
rule, the minimum ratio for this metric is 120 percent. While proposing 
a simpler approach than the U.S. banking regulators, the proposed rule 
makes conservative assumptions about what constitutes a less-liquid 
asset that requires longer term funding, like collateralized mortgage 
obligations (CMOs) noted below.
    Because the Enterprises lack access to the discount windows of any 
of the twelve Reserve Banks in the Federal Reserve System, FHFA 
proposes that only assets that are eligible to be posted as collateral 
through the FICC can be counted as liquid assets and all other assets, 
even some agency securities like agency CMOs, would be considered less-
liquid and require long-term funding.
    To address the funding of other long-term assets, FHFA also 
proposes to include a second long-term liquidity and funding 
requirement based on the ratio of the spread duration of the 
Enterprise's unsecured agency debt divided by the spread duration of 
its retained portfolio assets. The proposed rule would require that an 
Enterprise's spread duration ratio exceed 60 percent. This proposed 
long-term requirement will cause the Enterprises to maintain an 
appropriate amount of long-term unsecured debt and reduce rollover 
risk. As a result of this requirement, the Enterprises will have 
incentive to better match the repricing risk of their debt with the 
repricing of their assets. It will also minimize the risk that an 
Enterprise would be forced to sell significant amounts of long-term 
asset into distressed markets.
2. Long-Term Liquidity and Funding Requirements
    The proposed rule would require the Enterprises to meet two long-
term liquidity and funding requirements for the purpose of: (i) 
Reducing Enterprise debt maturity rollover risk; (ii) Ensuring that the 
Enterprises have sufficient long-term unsecured debt so they do not 
have to sell less-liquid assets into potentially stressed markets for 
at least one year; (iii) Incenting the Enterprises to issue an 
appropriate amount of long-term unsecured debt; and (iv) Incenting the 
Enterprises to reduce the amount of less-liquid assets held in the 
retained portfolio that are not eligible collateral for inclusion in 
the 365-day liquidity requirement. These two long-term liquidity and 
funding requirements complement each other. The first ensures that 
less-liquid assets are funded with long-term unsecured debt. The second 
ensures that the rollover and repricing of the unsecured debt is tied 
to the repricing of all the retained portfolio assets, not simply the 
less-liquid assets.
a. Long-Term Unsecured Debt to Less-Liquid Asset Ratio
    The proposed rule would include a long-term liquidity and funding 
requirement that the Enterprises manage their issuance of long-term 
unsecured debt and their holdings of less-liquid securities to ensure 
that the ratio of the Enterprises' long-term unsecured debt to its 
less-liquid assets is greater than 1.2, or 120 percent.
    Under the proposed rule, the numerator is the three-month moving 
average of the UPB of all outstanding Enterprise unsecured debt with 
one year or longer to maturity. The maturity of the unsecured debt is 
based on the final maturity of unsecured debt and not the call date. 
The denominator is the three-month moving average of all assets held in 
the retained portfolio that are not eligible collateral to be pledged 
to the FICC. For example, CMOs held by the Enterprises are not eligible 
to be pledged to the FICC and would be included in calculating the 
denominator.
    The proposed rule would allow the Enterprises to exclude certain 
relatively liquid loans from the denominator. For example, the proposed 
rule assumes that cash window loans or whole loan conduit loans, and 
reperforming loans that have no delinquencies in prior six months, can 
be readily converted into FICC-eligible collateral. Therefore, these 
loans would not be included in the denominator. In addition, certain 
multifamily pass-through securities held by the Enterprises are 
eligible to be pledged to the FICC but other multifamily structured 
securities arising from the K-deals are not eligible to be pledged to 
the FICC and would be included in the denominator.
    Question 13. Should FHFA broaden the definition of ``liquid 
assets'' to include certain non-FICC eligible assets, such as 
multifamily agency securities arising from K-deal transactions? If so, 
what criteria should FHFA use?

[[Page 1319]]

b. Spread Duration of Unsecured Debt To Spread Duration of Assets 
Requirement
    The proposed rule would include a second long-term requirement that 
measures the ratio of the spread duration of an Enterprise's unsecured 
debt to the spread duration of its retained portfolio assets. FHFA 
recognizes that effective duration is often defined as the percentage 
change in the price of financial instruments with embedded options from 
a 100-basis point change in interest rates. Financial instruments with 
positive duration increase in value as interest rates decline. 
Conversely, financial instruments with negative duration increase in 
value as interest rates rise. FHFA also recognizes that spread duration 
is often defined as the percentage change in the price of financial 
instruments from a change in spread over the benchmark interest rates. 
Unlike ``effective'' duration, spread duration is typically calculated 
by discounting of an instrument's cashflows, and not by the affecting a 
change of the underlying cashflows themselves due to optionality. This 
discounting impact creates a measure that is typically positive, where 
the instrument increases in value as spreads decline and decrease in 
value as spreads widen.
    Under the proposed rule, the numerator of the ratio is the three-
month moving average of the daily spread duration of all Enterprise 
unsecured debt. The denominator of the ratio is the three-month moving 
average of the daily spread duration of all Enterprise retained 
portfolio assets. The proposed rule would require that this ratio 
exceed 0.6 or 60 percent.
    The numerator is the three-month moving average of the daily spread 
duration of all Enterprise unsecured debt. The daily spread duration of 
all Enterprise unsecured debt on a particular day equals the weighted 
average of the individual spread duration for each unsecured debt 
instrument weighted by the product of the UPB and the market price for 
the unsecured debt instrument for that day. Determining the spread 
duration for all unsecured debt requires that an appropriate estimate 
be made for each unsecured debt instrument. In addition, using a three-
month moving average for the weighted balance sheet spread durations 
reduces potential impact of daily fluctuations on compliance 
management. The three-month moving average of the daily spread duration 
of all Enterprise unsecured debt is equal to the sum of the daily 
spread duration for all Enterprise unsecured debt for each business day 
over the three-month period preceding the calculation date divided by 
the total number of business days during the three-month period.
    The denominator is the three-month moving average of the daily 
spread duration of all Enterprise retained portfolio assets. The daily 
spread duration of all Enterprise assets on a particular day equals the 
weighted average of the individual spread duration for each asset 
weighted by the product of the UPB and the market price for the 
retained portfolio asset for that day. The three-month moving average 
of the daily spread duration of all Enterprise retained portfolio 
assets is equal to the sum of the daily spread duration for all 
Enterprise assets for each business day over the three-month period 
preceding the calculation date divided by the total number of business 
days during the three-month period.
    The proposed rule would provide additional assumptions that the 
Enterprises are to use in the calculation of this long-term liquidity 
and funding requirement. The proposed rule would allow the Enterprises 
to make the following adjustments to the spread duration of specific 
retained portfolio assets and unsecured debt:
    <bullet> For callable unsecured debt, the proposed rule would allow 
the Enterprises to use the maturity of the callable debt rather than 
the actual spread duration of the callable debt because the Enterprise 
does not have the obligation to call the debt early and can, in a 
liquidity event, decide not to call the bond.
    <bullet> For certain single-family and multifamily loans in the 
securitization pipeline, the proposed rule would allow the spread 
duration to be adjusted to better reflect the expected holding period 
of the loans before securitization and sale of these loans. For 
example, provided that the actual experience of the Enterprise can 
support these pipeline securitization assumptions, the proposed rule 
would allow a single-family loan in the securitization process to be 
assigned a two-month spread duration, and a multifamily loan in the 
securitization pipeline to be assigned a six-month spread duration. 
FHFA supervision teams will evaluate the underlying support for key 
assumptions, like this spread duration assumption, as part of ongoing 
supervisory activities.
    <bullet> For certain trust structures, like those that are 
consolidated for GAAP purposes or credit risk transfer related trusts, 
the proposed rule would allow certain trust related assets to be 
excluded, as the trust structures are not funded by unsecured corporate 
debt but rather by debt issued by the trust and backed by the assets in 
the trust. In essence, the debt issued by MBS trusts and the loans in 
the MBS trusts that secure the debt are closely matched and the 
Enterprise does not have funding risk and thus these assets and 
liabilities are not included in this spread duration requirement. 
Similarly, certain credit risk transfer trusts, created by Fannie Mae 
(Connecticut Avenue Securities Credit-Linked Notes) and Freddie Mac 
(Structured Agency Credit Risk Credit-Linked Notes) are not included in 
this spread duration requirement. For the original credit risk 
transfers that did not include a credit-linked note structure, the 
Enterprises are required to include those as they represent unsecured 
debt issued by the corporation.
    <bullet> The proposed rule would allow the Enterprises to exclude 
high quality liquid assets held in the liquidity portfolio from the 
denominator of the calculation because these assets are deemed to be 
liquid securities that do not require term funding and can be readily 
liquidated into cash. Similarly, the collateral used to post as initial 
margin is excluded from the spread duration asset calculation for this 
requirement.
    Question 14. FHFA requests comment on whether the spread duration 
requirement appropriately addresses the concerns noted above, or 
whether there are alternative approaches to do so? Does the value of 
including the spread duration requirement exceed the costs and 
complexity of the calculation?
c. Funding From Stockholders Equity
    Under the two longer-term proposed requirements, the Enterprises 
would be required to identify the maturity of unsecured debt 
instruments based on their contractual maturity. Other balance sheet 
sources of funds, like stockholder's equity, typically do not have a 
contractual maturity. In the case of stockholder's equity, the proposed 
rule treats these funding sources as short-term funding substitutes and 
does not attribute any maturity to these sources of funds beyond one 
year.
    Question 15. FHFA requests comment on whether some portion of 
stockholder's equity should be considered as a longer-term funding 
source for the long-term liquidity and funding requirements? If so, 
why? If so, what analytics would support this assumption?

C. Temporary Reduction of Liquidity Requirements

    FHFA recognizes that during periods of economic dislocation or 
market stress, it may be necessary for an

[[Page 1320]]

Enterprise, consistent with safety and soundness, to expend its 
liquidity position in order to support market liquidity to the 
secondary mortgage market. Such support may be necessary during periods 
of market stress to further an Enterprise's statutory public purposes, 
and may require, for example, that an Enterprise be provided 
flexibility to meet a reduced 30-day liquidity minimum in order to fund 
severe stress liquidity needs and to continue to provide liquidity to 
the secondary mortgage markets.
    Therefore, the proposed rule would provide for temporary reductions 
in minimum liquidity requirements to address economic, market, or other 
circumstances. Specifically, it would provide for FHFA consideration 
and determination that, due to economic or market conditions, temporary 
adjustments to reduce the minimum liquidity requirements are needed to 
address those conditions. FHFA's exercise of this authority is intended 
to further Enterprise public purposes in supporting secondary mortgage 
market liquidity during periods of severe economic or market stress.
    Question 16. FHFA seeks comment on all aspects of the proposed 
process for FHFA temporarily to reduce minimum regulatory liquidity 
requirements to respond appropriately during periods of economic or 
market stress.

III. Liquidity Risk Management Reporting

    The proposed rule would require each Enterprise to report daily to 
FHFA its compliance with the minimum liquidity requirements. The 
Enterprises shall submit such reports at the close of each business 
day, which is treated as Day 0, reflecting the liquidity positions and 
other required information as of 6 p.m. EST on Day 0. Such reports 
shall include, at a minimum, the key stress scenario assumptions 
discussed in the preamble, including a summary of the respective cash 
flows and other significant information and any other key assumptions 
used to calculate the four liquidity requirements. In some cases, this 
may require supplemental reports to explain individual key stress cash 
flows, like the purchases of delinquent loans and the purchases of cash 
window and whole loan conduit loans. These supplemental reports could 
also include, but are not limited to, the composition of both the FICC-
eligible and non-FICC eligible collateral and the components of the 
spread duration calculations.
    The proposed rule would provide enhanced information about the 
short-term, intermediate-term and long-term liquidity and funding 
profile of the Enterprises to managers, board directors, and 
supervisors. With this information, the Enterprise's management and 
supervisors would be better able to assess the Enterprise's ability to 
meet its projected liquidity needs during periods of liquidity stress, 
take appropriate actions to address liquidity needs, and, in situations 
of failure, to implement an orderly resolution of the Enterprise.
    The proposed rule's 30-day and 365-day liquidity requirements would 
use Enterprise cash flow projections and certain assumptions based on 
stressed market conditions. While the short-term and intermediate-term 
liquidity requirements would use specific assumptions specified by FHFA 
(including by order) for liquidity requirement calculation purposes, 
FHFA expects the Enterprises would maintain robust stress testing 
frameworks that incorporate additional scenarios, like lower rate 
environments that might trigger calling debt. Enterprises should use 
these additional scenarios in conjunction with the proposed rule's 
liquidity requirements to appropriately determine their board and 
management liquidity buffers. FHFA notes that the four liquidity 
requirements are minimum requirements and organizations, like the 
Enterprises, that pose more systemic risk to the U.S. financial system 
or whose liquidity stress testing indicates a need for higher liquidity 
buffers may need to take additional steps beyond meeting the minimum 
ratio in order to meet supervisory expectations.
    The proposed rule contemplates alignment between the Enterprises 
for the daily reporting of the liquidity and funding requirements and 
may, by order, require a common template that demonstrates the sources 
and uses of cash and the increased cash outflows or reduced cash 
inflows resulting from the seven stress scenarios. The objective is to 
ensure that management and supervisors have a transparent and readily 
comparable view into the key assumptions and resulting cash flows or 
metrics.
    The proposed rule would require each Enterprise to report to the 
public its compliance with the four liquidity requirements monthly. 
Each Enterprise currently publishes a monthly volume summary that 
includes important information that the public consumes. The proposed 
rule would require the Enterprises to amend their respective monthly 
volume summaries and provide the average and month-end metrics for each 
of the four liquidity and funding requirements. In addition to the 
liquidity metrics, the Enterprises should include key assumptions used 
to estimate these liquidity metrics. FHFA may, by order, decide to 
include additional reporting requirements.
    Question 17. FHFA invites public comment on all aspects of the 
proposed process and minimum elements for regulatory, management, and 
public reporting.

IV. Supervisory Framework

A. Liquidity Requirement Shortfall

    Under the proposed rule, an Enterprise would be required to notify 
FHFA on any business day that any of the four liquidity requirements is 
not met. Specifically, if an Enterprise's liquidity position is 
calculated to be less than any of the minimum liquidity requirements, 
the Enterprise must promptly submit to FHFA for approval a plan for 
achieving compliance, unless FHFA instructs otherwise. In addition, if 
FHFA determines that the Enterprise is otherwise non-compliant with the 
requirements of this part, FHFA may require the Enterprise to submit to 
FHFA for approval a plan to remediate the shortfall. The Enterprise 
plan must include, as applicable: (1) An assessment of the Enterprise's 
liquidity profile and the reasons for the shortfall; and (2) The 
actions that the Enterprise has taken and will take to achieve full 
compliance with this part, including: (i) A plan for adjusting the 
Enterprise's risk profile, risk management, and funding sources in 
order to achieve full compliance with this part; (ii) A plan for 
remediating any operational or management issues that contributed to 
noncompliance with this part; (iii) Best estimate time frame for 
achieving full compliance with this part; and (iv) A commitment to 
report to FHFA daily on Enterprise progress to achieve compliance in 
accordance with the plan until full compliance with this part is 
achieved. Finally, the Enterprise plan must include other 
considerations or actions as may be required for FHFA approval.
    FHFA engagement with the Enterprise on a remediation plan does not 
preclude exercise of other supervisory or enforcement authorities. FHFA 
may, at its sole discretion, take additional supervisory or enforcement 
actions to address non-compliance with the requirements of this part, 
including non-compliance with the minimum liquidity requirements or 
non-compliance with any requirement to submit a liquidity plan 
acceptable to FHFA. The liquidity remediation plan is intended to 
enable FHFA to monitor and respond appropriately to the unique

[[Page 1321]]

circumstances giving rise to an Enterprise's liquidity shortfall.
    Question 18. FHFA invites public comment on all aspects of FHFA's 
proposed process to respond appropriately to Enterprise shortfalls in 
required liquidity.

B. Process for Supervisory Determination of Temporarily Increased 
Liquidity Requirements

    The Board of Directors and senior management of the Enterprises 
have duties under applicable law to oversee, monitor, and manage 
Enterprise liquidity risk prudently. FHFA recognizes that under certain 
circumstances, it may be necessary for an Enterprise to enhance its 
liquidity position commensurate with its business activities. Under the 
proposed rule, when FHFA determines that, due to economic, market, or 
Enterprise-specific circumstances, temporary modified Enterprise 
liquidity requirements above those established under this part are 
necessary or appropriate for an Enterprise, FHFA will notify the 
Enterprise in writing of the proposed modified Enterprise liquidity 
requirements, the timeframe by which the Enterprise is required to 
achieve and comply with the proposed requirements, and an explanation 
of why the proposed modified Enterprise liquidity requirements are 
considered necessary or appropriate for the Enterprise.
    The Enterprise may respond in writing within 30 days, or such time 
as FHFA may require, to any or all of the matters addressed in the 
notice, including any information which the Enterprise would like FHFA 
to consider in determining whether to establish the proposed modified 
liquidity requirements for the Enterprise. Failure to respond shall 
constitute a waiver of any objections to the proposed modified 
liquidity requirements or the timeframes for compliance.
    After the close of the Enterprise response time period, FHFA will 
determine whether to establish the temporarily increased requirements 
for the Enterprise. FHFA will notify the Enterprise of its written 
determination and order effectuating the modified requirements. As part 
of its determination, FHFA may require the Enterprise to develop and 
submit a plan acceptable to FHFA to reach the modified liquidity 
requirements.
    These procedures are intended to enable FHFA to monitor and respond 
appropriately to the particular economic, market, or Enterprise-
specific circumstances by adjusting the minimum liquidity requirements 
through a temporary increase.
    Question 19. FHFA invites public comment on all aspects of FHFA's 
proposed procedures to respond appropriately and in a timely manner to 
economic, market, Enterprise-specific, or other circumstances affecting 
Enterprise liquidity, safety and soundness, and ability to meet their 
public purposes.

V. Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) (44 U.S.C. 3501 et seq.) requires 
that regulations involving the collection of information receive 
clearance from the Office of Management and Budget (OMB). The proposed 
rule contains no such collection of information requiring OMB approval 
under the PRA. Therefore, no proposed collection of information has 
been submitted to OMB for review.

VI. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. FHFA need not undertake such an 
analysis if the agency has certified that the regulation will not have 
a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 605(b). FHFA has considered the impact of the 
proposed rule under the Regulatory Flexibility Act. The General Counsel 
of FHFA certifies that the proposed rule, if adopted as a final rule, 
would not have a significant economic impact on a substantial number of 
small entities because the proposed rule is applicable only to the 
Enterprises, which are not small entities for purposes of the 
Regulatory Flexibility Act.

The Proposed Rule

List of Subjects in 12 CFR part 1241

    Administrative practice and procedure, Government-sponsored 
enterprises, Reporting and recordkeeping requirements.

Authority and Issuance

    Accordingly, for the reasons stated in the preamble, under the 
authority of 12 U.S.C. 4526, FHFA proposes to amend Chapter XII of 
Title 12 of the Code of Federal Regulations as follows:

CHAPTER XII--Federal Housing Finance Agency

Subchapter C--Enterprises

0
1. Add part 1241 to subchapter C to read as follows:

PART 1241--MINIMUM ENTERPRISE LIQUIDITY REQUIREMENTS

Subpart A--General Provisions
Sec.
1241.1 Purpose and applicability.
1241.2 Supervisory and enforcement authority.
1241.3 Definitions.
Subpart B--Required Minimum Enterprise Liquidity
1241.10 Enterprise liquidity calculation and operational 
requirements.
1241.11 Minimum Enterprise liquidity requirements.
1241.12 Temporary reduction of liquidity requirements.
Subpart C--Reporting Requirements
1241.20 Required liquidity reporting.
1241.21 Reporting orders.
Subpart D--Supervisory Framework for Remediating Minimum Liquidity
1241.30 Remediation of minimum liquidity shortfall.
1241.31 Supervisory determination of temporarily increased liquidity 
requirements.
Subpart E--[Reserved]

    Authority: 12 U.S.C. 4511(b); 12 U.S.C. 4513(a); 12 U.S.C. 
4513b; 12 U.S.C. 4514; 12 U.S.C. 4526; 12 U.S.C. 4631-4636.

Subpart A--General Provisions


Sec.  1241.1  Purpose and applicability.

    (a) Purpose. FHFA is responsible for supervising and ensuring the 
safety and soundness of the regulated entities. In furtherance of those 
responsibilities, this part sets forth minimum liquidity and related 
requirements that apply to each Enterprise. (b) Applicability. The 
requirements established by this part apply to the Enterprises, and do 
not apply to the Federal Home Loan Banks or the Office of Finance.


Sec.  1241.2  Supervisory and enforcement authority.

    (a) Exercise of authority. If FHFA determines that the Enterprise's 
liquidity requirements as calculated under this part are not 
commensurate with its liquidity risks, FHFA may, consistent with Sec.  
1241.31, require an Enterprise temporarily to hold an amount of High 
Quality Liquid Assets or other liquidity assets in an amount greater 
than otherwise required under this part, or to take any other measure 
to improve an Enterprise's liquidity risk profile.

[[Page 1322]]

    (b) No safe harbor. The liquidity requirements established under 
this part are minimum requirements. Compliance with this part does not 
preclude agency action to enforce any other provision of law or 
regulation, including 12 CFR parts 1236 and 1239.
    (c) FHFA supervisory and enforcement authority not affected. 
Nothing in this part shall be construed to limit the authority of FHFA 
under any other provision of law or regulation to take supervisory or 
enforcement action, including action to address unsafe or unsound 
practices or conditions, deficient liquidity coverage levels, or 
violations of law. (d) Prudential standard. This part is a prudential 
standard under 12 U.S.C. 4513b(a)(5) and 12 CFR part 1236.


Sec.  1241.3  Definitions.

    For purposes of this part:
    Calculation date means the business day as of which an Enterprise 
calculates its liquidity position and compliance with each of the 
minimum liquidity requirements established under this part.
    Cumulative Daily Net Cash Outflows (CDNCO) means, with respect to 
any day within a calendar period (i.e., 30-day or 365-day period) for 
which the CDNCO is calculated, the cumulative sum of an Enterprise's 
Daily Net Cash Flows starting from the first day following the 
Calculation Date up to and including the day in the calendar period for 
which the CDNCO is calculated.
    Daily Excess Requirement means an amount equal to $10 billion.
    Daily Net Cash Flows (DNCF) means, for any day within a calendar 
period (i.e., 30-day or 365-day period) for which the DNCF is 
calculated, the Total Cash Outflows minus the Total Cash Inflows for 
that day. A positive DNCF represents a net cash outflow for the day, 
while a negative DNCF represents a net cash inflow for the day.
    Day or daily means calendar day, and daily means pertaining to a 
calendar day, unless otherwise specified.
    Elected Calculation Time means the time on the Calculation Date as 
of which an Enterprise must calculate its liquidity position for 
purposes of determining compliance with each of the minimum liquidity 
requirements established under this part. The Elected Calculation Time 
is 6 p.m. Eastern Standard Time (EST), unless the Enterprise elects a 
different Elected Calculation Time approved in writing by FHFA. The 
Enterprise may not change its Elected Calculation Time without prior 
written approval by FHFA.
    High Quality Liquid Assets means, regardless of ``trading'', 
``available for sale'', or ``held-to-maturity'' accounting 
designations, the following unencumbered assets that are owned and held 
by the Enterprise free of legal, regulatory, contractual, or other 
restrictions on the ability of the Enterprise to monetize the asset for 
cash, and that have not been pledged, explicitly or implicitly, to 
secure or provide credit enhancement for any transaction:
    (1) Cash deposits held in a Federal Reserve Bank account;
    (2) U.S. Treasury securities;
    (3) Short-term secured loans to the Federal Reserve Bank of New 
York secured by U.S. Treasury securities; short-term secured loans held 
by the Enterprise secured by U.S. Treasury securities that clear 
through the Fixed Income Clearing Corporation (FICC). For short-term 
secured loans to the Federal Reserve Bank of New York or those cleared 
through the FICC, the remaining maturity term of the asset must not be 
longer than the greater of:
    (i) 15 days; or
    (ii) The number of days until the next agency mortgage-backed 
securities (MBS) payment date;
    (4) Up to an amount not to exceed $10 billion, and subject to 
sufficient counterparty credit risk limits on deposits with any single 
institution and affiliated institutions, unsecured overnight bank 
deposits with a federally chartered bank where the bank and any holding 
company controlling the bank are headquartered in the United States, 
and where the bank is subject to quarterly reporting under the Federal 
Reserve System's FR Y-15 reporting requirements (or any amended or 
successor report) and has at least $250 billion in assets as of the 
most recent reporting date.
    Highest Cumulative Daily Net Cash Outflows (HCDNCO) means, with 
respect to a calendar period (i.e., 30-day or 365-day period), the 
greater of zero or the maximum Cumulative Daily Net Cash Outflows 
amount occurring within the calendar period.
    Minimum Stress Assumptions has the meaning set forth in Sec.  
1241.10(d).
    Spread Duration of Unsecured Debt has the meaning set forth in 
Sec.  1241.11(c)(2)(ii)(A).
    Spread Duration of Retained Portfolio Assets has the meaning set 
forth in Sec.  1241.11(c)(2)(ii)(B).
    Total Cash Inflows means, for any day for which Total Cash Inflows 
is calculated, all cash inflows into the Enterprise. Total Cash Inflows 
includes cash inflows from To-be-Announced (TBA) contracts held by the 
Enterprise on or before the Calculation Date, which are assumed to be 
valid and represent cash inflows on the contract settlement date. With 
respect to any MBS trust-related cash flows, an Enterprise must include 
the total cash inflows to the Enterprise from its MBS trusts. Total 
Cash Inflows must be determined using the Minimum Stress Assumptions. 
For example, total Cash Inflows do not include any expected cash 
inflows from new debt issuance, unless the unsecured debt issuance has 
traded but not yet settled as of the Calculation Date. For cash inflows 
expected from mortgage sales or securitizations, calculations of Total 
Cash Inflows are limited consistent with the Minimum Stress 
Assumptions.
    Total Cash Outflows means, for any day for which Total Cash 
Outflows is calculated, all cash outflows from the Enterprise. Total 
Cash Outflows includes, but is not limited to, cash outflows related to 
funding new mortgage purchases through the Enterprise facilities for 
purchasing mortgages in exchange for cash, i.e., the Freddie Mac cash 
window or the Fannie Mae whole loan conduit. With respect to any MBS 
trust-related cash flows, an Enterprise must include the total cash 
outflows from the Enterprise to its MBS trusts. Total Cash Outflows 
must be determined using the Minimum Stress Assumptions. MBS trust-
related cash outflows include advances paid by the Enterprise on 
principal and interest to MBS trusts and investors and delinquent loan 
buyouts.
    Total Less-liquid Retained Portfolio Assets has the meaning set 
forth in Sec.  1241.11(c)(1)(ii).
    Total Long-term Unsecured Debt has the meaning set forth in Sec.  
1241.11(c)(1)(i).

Subpart B--Required Minimum Enterprise Liquidity


Sec.  1241.10  Enterprise liquidity calculation and operational 
requirements.

    (a) Calculation date for minimum liquidity requirement. An 
Enterprise must, on each business day, calculate its liquidity position 
and compliance with the minimum liquidity requirements established 
under Sec.  1241.11(a) and (b) for a 30-day period and a 365-day 
period, and under Sec.  1241.11(c) for the long-term liquidity 
requirements.
    (b) Elected Calculation Time. The Enterprise must calculate its 
liquidity position and compliance with the minimum liquidity 
requirements established under Sec.  1241.11(a) and (b) for a 30-day 
period and a 365-day period, and under Sec.  1241.11(c) for the long-
term liquidity requirements, as of

[[Page 1323]]

the Elected Calculation Time on each Calculation Date. Unless the 
Enterprise elects a different Elected Calculation Time by written 
notice approved by FHFA, the Elected Calculation Time will be 6 p.m. 
EST. The Enterprise may not change its Elected Calculation Time without 
prior written approval by FHFA.
    (c) Operational requirements for High Quality Liquid Assets. An 
Enterprise must meet the following requirements for assets held as High 
Quality Liquid Assets for purposes of meeting the minimum liquidity 
requirements:
    (1) Implement and maintain appropriate procedures and systems to 
monetize the High Quality Liquid Assets at any time in accordance with 
applicable standard settlement procedures;
    (2) Conduct periodic testing of the effectiveness and ability of 
Enterprise procedures and systems to monetize a sample of High Quality 
Liquid Assets held;
    (3) Implement and maintain policies requiring all High Quality 
Liquid Assets to be controlled by the Enterprise management function 
responsible for managing Enterprise liquidity risk, including a 
requirement that the High Quality Liquid Assets be segregated from 
other Enterprise assets for the sole purpose of providing liquidity to 
the Enterprise in times of market stress; and
    (4) Implement and maintain policies and procedures that, on a daily 
basis:
    (i) Identify where the High Quality Liquid Asset is held by legal 
entity, geographic location, currency, custodial or bank account, and 
other relevant identifying factors; and
    (ii) Determine that the assets held as High Quality Liquid Assets 
continue to qualify as High Quality Liquid Assets.
    (d) Minimum Stress Assumptions. An Enterprise must use the Minimum 
Stress Assumptions in determining its Total Cash Inflows and Total Cash 
Outflows to calculate its liquidity position and compliance with the 
minimum liquidity requirements established under Sec.  1241.11(a) and 
(b) for a 30-day period and a 365-day period, and under Sec.  
1241.11(c) for the long-term liquidity requirements. Minimum Stress 
Assumptions means the following stress scenarios:
    (1) Complete loss of enterprise ability to issue unsecured debt. In 
determining its cash inflows and outflows, the Enterprise must assume 
it is unable to issue any unsecured debt or receive cash from any 
unsecured debt issuance for the 365 days following the Calculation 
Date, except for unsecured debt traded but not yet settled as of the 
Calculation Date.
    (2) Continued mortgage purchases from enterprise cash window and 
whole loan conduit, with limited ability to sell or securitize 
mortgages--(i) Single-family. In determining its cash inflows and 
outflows from its single-family mortgage operations, the Enterprise 
must:
    (A) Assume it must continue to fund all forecasted single-family 
mortgage purchases based on Enterprise models for 30 days and 365 days, 
respectively, following the Calculation Date.
    (B) Assume that, except for mortgages to be delivered under TBA 
contracts that are cleared through FICC and held by the Enterprise as 
of the Elected Calculation Time on the Calculation Date, it is unable 
to sell or securitize any mortgages until the later of 60 days 
following the Calculation Date or 30 days following acquisition of the 
mortgage.
    (C) Not include in its cash inflow calculations mortgage sales on 
existing TBA contracts in excess, as of any Calculation Date, of 
existing Enterprise mortgage purchases and commitments to purchase 
mortgages.
    (D) Not double-count its cash inflows for the sale or 
securitization of a mortgage and from cash inflows arising from an 
existing TBA contract on that mortgage. For example, an Enterprise may 
include a cash inflow from the sale of a mortgage, but if so, it may 
not also incorporate a cash inflow from a TBA contract associated with 
the same mortgage.
    (ii) Multifamily. In determining its cash inflows and outflows from 
its multifamily mortgage operations, the Enterprise must:
    (A) Assume it must continue to fund all forecasted multifamily 
mortgage purchases over 30 days and 365 days, respectively, following 
the Calculation Date.
    (B) For any multifamily mortgage that an Enterprise acquires and 
receives delivery of on or before the Calculation Date, assume it sells 
or securitizes such mortgage, and receives corresponding cash inflow, 
starting on day 91 following the Calculation Date, provided that the 
Enterprise held such a loan for a total of 180 days.
    (C) For any multifamily mortgage that an Enterprise acquires and 
receives delivery of after the Calculation Date, assume it is unable to 
sell or securitize such mortgage until at least 180 days following 
acquisition and delivery. An Enterprise may assume, to the extent it 
sufficiently documents the factual basis for the assumption, that it is 
able to sell or securitize a multifamily mortgage after a certain 
number of days following acquisition of the mortgage, provided that the 
assumed number of days is not less than 180 days.
    (3) Increase in borrower delinquencies under stress conditions. In 
determining its cash inflows, the Enterprise must assume the number of 
borrowers failing to make scheduled principal, interest, tax, and 
insurance payments under their mortgages increases consistent with a 
stress scenario. The Enterprise must assume that the Enterprise is 
required to advance principal, interest, tax, and insurance payments as 
required under its MBS trust agreements, and consistent with its 
servicing agreements. To determine the stress increase in borrowers, 
the Enterprise must use either the following assumed stress scenarios, 
whichever results in the greater stress estimate of borrowers failing 
to make scheduled mortgage payments:
    (i) The most recent Dodd-Frank Act Stress Test (DFAST) severe 
stress scenario assumptions provided to the Enterprise by FHFA; or
    (ii) Other stress scenarios as FHFA may prescribe by order.
    (4) Increase in delinquent loan buyouts from enterprise-guaranteed 
MBS under stress conditions. (i) In determining its cash outflows, the 
Enterprise must determine stress volumes of delinquent loan buyouts 
from its guaranteed MBS for 30 days following the Calculation Date, and 
for 365 days following the Calculation Date. To make such 
determination, the Enterprise must use either of the following assumed 
stress scenarios, whichever results in the greater stress estimate of 
delinquent mortgage buyouts:
    (A) The most recent DFAST severe stress scenario assumptions 
provided to the Enterprise by FHFA, or
    (B) Other stress scenarios as FHFA may prescribe by order.
    (ii) An Enterprise may assume, to the extent that it sufficiently 
documents the evidentiary basis for the assumption, that it could sell 
delinquent mortgages forecasted to be repurchased from pools beginning 
a certain number of days from the forecasted repurchase date, provided 
that the assumed number of days is not less than 180 days.
    (5) Immediate need to meet collateral requirements to maintain 
access to short-term lending market. In determining its cash outflows, 
the Enterprise must assume a cash outflow, on the first day following 
the Calculation Date (i.e., Day 1), in the amount of initial collateral 
that the FICC requires the Enterprise to post in order to access the 
FICC facility for the calendar month following the Calculation Date. If 
the FICC has not yet

[[Page 1324]]

informed the Enterprise of the required amount of initial collateral 
for the following month, the Enterprise must use its best estimate of 
the required FICC initial collateral.
    (6) Immediate need to advance funds under variable-rate demand bond 
liquidity facilities. In determining its cash outflows, the Enterprise 
must assume that all contingent liabilities and associated cash flows 
related to all variable-rate demand bonds whose liquidity is guaranteed 
by the Enterprise are immediately exercised and due, with the required 
cash outflows occurring the first day following the Calculation Date 
(i.e., Day 1). (7)
    Increase in remittance shortfall by top non-bank seller-servicers 
under stress conditions. In determining its cash inflows, the 
Enterprise must assume for the first month only that its top-five 
largest non-bank servicers by unpaid principal balance (UPB) fail, for 
all loans serviced for the Enterprise by these servicers, to remit by 
the applicable remittance due dates scheduled principal, interest, tax, 
and insurance payments. The Enterprise must assume cash outflows during 
the first month to cover principal and interest payments to holders of 
its MBS, and to pay taxes and insurance on the affected mortgages. For 
purposes of determining Total Cash Inflows, the Enterprise may assume a 
cash inflow on day 61 following the Calculation Date representing 
repayment to the Enterprises of the advances made in respect of the 
amounts assumed not to have been timely remitted.


Sec.  1241.11  Minimum Enterprise liquidity requirements.

    (a) Minimum required liquidity to cover 30-day period. (1) An 
Enterprise must, for each Calculation Date at the Elected Calculation 
Time, calculate and determine its Cumulative Daily Net Cash Outflows 
for each day of the 30-day period beginning the day following the 
Calculation Date, the amount of the Highest Cumulative Daily Net Cash 
Outflows for the 30-day period, and the day on which the Highest 
Cumulative Daily Net Cash Outflows occurs for the 30-day period.
    (2) As of each Calculation Date, an Enterprise must maintain High 
Quality Liquid Assets equal to or greater than the sum of:
    (i) The Enterprise's Highest Cumulative Daily Net Cash Outflows 
calculated to occur over the 30-day period beginning the day following 
the Calculation Date, and;
    (ii) The Daily Excess Requirement.
    (b) Minimum required liquidity to cover 365-day period. (1) An 
Enterprise must, for each Calculation Date at the Elected Calculation 
Time, calculate and determine its Cumulative Daily Net Cash Outflows 
for each day of the 365-day period beginning the day following the 
Calculation Date, the amount of the Highest Cumulative Daily Net Cash 
Outflows for the 365-day period, and the day on which the Highest 
Cumulative Daily Net Cash Outflows occurs for the 365-day period.
    (2) As of each Calculation Date, an Enterprise must maintain a 
liquidity portfolio with assets set forth in Sec.  1241.11(b)(3) equal 
to or greater than the Enterprise's Highest Cumulative Daily Net Cash 
Outflows calculated to occur over the 365-day period beginning the day 
following the Calculation Date.
    (3) For purposes of meeting the minimum required liquidity to cover 
the 365-day period following the Calculation Date, an Enterprise must 
hold assets consisting of:
    (i) High Quality Liquid Assets;
    (ii) Subject to a discount of 15 percent of the UPB forecasted to 
remain on the day on which the Highest Cumulative Daily Net Cash 
Outflows occur, Enterprise-guaranteed MBS that are eligible as 
collateral for FICC; or
    (iii) Subject to a discount of 15 percent of the UPB forecasted to 
remain on the day on which the Highest Cumulative Daily Net Cash 
Outflows occur, mortgage loans that the Enterprise purchased through 
its cash window or whole loan conduit, or re-performing loans 
previously purchased from Enterprise MBS trusts, that are readily 
securitized into MBS that would be eligible as collateral for FICC.
    (A) A single-family mortgage loan purchased through the cash window 
or whole loan conduit is deemed not readily securitized within the 
first 60 days following the Calculation Date, and is deemed readily 
securitized 30 days following the acquisition date of the loan if the 
loan was acquired after the first 30 days following the Calculation 
Date.
    (B) For re-performing loans previously purchased out of Enterprise 
MBS trusts, such loans must be re-performing for at least 180 days in 
order to be deemed readily securitized into FICC-eligible collateral.
    (c) Minimum required long-term liquidity--(1) Ratio of Total Long-
term Unsecured Debt to Total Less-liquid Retained Portfolio Assets must 
exceed 120 percent. As of each Calculation Date, an Enterprise must 
maintain its Total Long-term Unsecured Debt in a proportion greater 
than 120 percent to its Total Less-liquid Retained Portfolio Assets, 
such that Total Long-term Unsecured Debt divided by Total Less-liquid 
Retained Portfolio Assets exceeds 1.2 (i.e., 120 percent).
    (i) Total Long-term Unsecured Debt means the three-month moving 
average of the total UPB outstanding of all unsecured debt issued by 
the Enterprise with one year or longer to maturity remaining from the 
Calculation Date.
    (ii) Total Less-liquid Retained Portfolio Assets means the three-
month moving average of the UPB of all retained portfolio assets that 
are not eligible collateral to be pledged to the FICC. Loans purchased 
through the cash window or whole loan conduit and reperforming loans 
that are readily securitized into FICC-eligible collateral as described 
in Sec.  1241.11(b)(3)(iii) are not included in Total Less-liquid 
Retained Portfolio Assets.
    (2) Ratio of Spread Duration of Unsecured Debt to Spread Duration 
of Retained Portfolio Assets must exceed 60 percent--(i) Enterprise 
election of spread duration methodology. An Enterprise must, by the 
effective date of this part, sufficiently document its methodology to 
determine the spread duration of its unsecured debt and its retained 
portfolio assets. An Enterprise may not change its spread duration 
methodology without prior written approval from FHFA.
    (ii) Ratio of Spread Duration of Unsecured Debt to Spread Duration 
of Retained Portfolio Assets must exceed 60 percent. As of each 
Calculation Date, an Enterprise must maintain its Spread Duration of 
Unsecured Debt in a proportion greater than 60 percent to its Spread 
Duration of Retained Portfolio Assets, such that its Spread Duration of 
Unsecured Debt divided by its Spread Duration of Retained Portfolio 
Assets exceeds 0.6.
    (A) The Spread Duration of Unsecured Debt equals the three-month 
moving average of the daily spread duration of all Enterprise-issued 
unsecured debt for each business day during the previous three-month 
period.
    (1) The daily spread duration of all Enterprise-issued unsecured 
debt on a particular business day equals the weighted average of the 
individual spread duration for each issue of unsecured debt weighted by 
the product of the UPB and the price for the issue of unsecured debt 
for that day.
    (2) The three-month moving average of the daily spread duration of 
all Enterprise-issued unsecured debt is equal to the sum of the daily 
spread duration for all Enterprise-issued unsecured debt for each 
business day over the three-month period preceding the Calculation Date 
divided by the total number of business days during the three-month 
period.

[[Page 1325]]

    (B) The Spread Duration of Retained Portfolio Assets equals the 
three-month moving average of the daily spread duration of all 
Enterprise retained portfolio assets funded in whole or in part by 
unsecured debt for each business day during the previous three-month 
period.
    (1) The daily spread duration of all Enterprise retained portfolio 
assets funded in whole or in part by unsecured debt on a particular 
business day equals the weighted average of the individual spread 
duration for each such retained portfolio asset weighted by the product 
of the UPB and the price for the retained portfolio asset for that day.
    (2) The three-month moving average of the daily spread duration of 
all Enterprise retained portfolio assets funded in whole or in part by 
unsecured debt is equal to the sum of the daily spread duration for all 
such Enterprise retained portfolio assets for each business day over 
the three-month period preceding the Calculation Date divided by the 
total number of business days during the three-month period.
    (C) An Enterprise may use the following assumptions or exclusions 
for the specified assets and unsecured debt to calculate its Spread 
Duration of Unsecured Debt and Spread Duration of Retained Portfolio 
Assets:
    (1) For callable debt issued by the Enterprise, the Enterprise may 
assume that it will not call its callable debt and, instead, use the 
maturity rather than the actual spread duration of its callable debt.
    (2) For single-family loans that the Enterprise has purchased and 
that are in process of securitization, the Enterprise may assume, to 
the extent that the Enterprise sufficiently documents the evidentiary 
basis supporting the assumption, a certain holding period for the loans 
in order to calculate their spread duration, provided that the assumed 
holding period is not less than two months.
    (3) For multifamily loans that the Enterprise has purchased and 
that are in process of securitization, the Enterprise may assume, to 
the extent that the Enterprise sufficiently documents the evidentiary 
basis supporting the assumption, a certain holding period for the loans 
in order to calculate their spread duration, provided that the assumed 
holding period is not less than six months.
    (4) For Enterprise-created trusts whose assets are funded, not by 
unsecured debt issued by the Enterprise, but by debt issued by the 
respective trusts and backed by assets of the trusts, the Enterprise 
may exclude such trusts from its calculation of the Spread Duration of 
Unsecured Debt and the Spread Duration of Retained Portfolio Assets. 
For example, the Enterprise may exclude from its calculation of the 
spread duration requirement certain trusts related to credit risk 
transfers, e.g., Freddie Mac STACR CLN Trusts and Fannie Mae CAS CLN 
Trusts.
    (5) For High Quality Liquid Assets, an Enterprise may exclude such 
assets from its calculation of Spread Duration of Retained Portfolio 
Assets. An Enterprise may also exclude from its calculation of Spread 
Duration of Retained Portfolio Assets, Treasury assets that are posted 
as collateral with the FICC for initial margin.


Sec.  1241.12  Temporary reduction of liquidity requirements.

    An Enterprise is not required to meet one or more of the minimum 
liquidity requirements if FHFA determines that, due to economic, 
market, or other circumstances, temporarily reduced liquidity levels 
are necessary or appropriate for the Enterprises to support liquidity 
in the secondary mortgage market. Such determination shall be evidenced 
by an FHFA order, which shall set forth the adjusted minimum liquidity 
requirements applicable to the Enterprise, and be temporary and time-
limited to address the relevant circumstances.

Subpart C--Reporting Requirements


Sec.  1241.20  Required liquidity reporting.

    (a) Reporting to FHFA. An Enterprise shall report to FHFA daily 
using the close of business position of the prior business day, the 
Enterprise calculations of its liquidity position and compliance under 
each of the minimum liquidity requirements, as of the Elected 
Calculation Time on the Calculation Date. Such reporting shall be in a 
form, manner, and content as directed by FHFA. At a minimum, the 
Enterprise liquidity reports shall include:
    (1) The daily metric for each of the four liquidity requirements 
that demonstrates compliance with this part;
    (2) Key stress scenario assumptions used to calculate Enterprise 
liquidity metrics, as well as any significant changes in those 
assumptions from prior reports;
    (3) Summary of the respective cash flows for each of the stressed 
cash flow scenarios and other significant information related to the 
30-day and 365-day metrics, e.g., the delinquent loan purchases, and 
cash window and whole loan conduit purchases;
    (4) Supplemental reports explaining the components of the numerator 
and denominator of the first long-term liquidity and funding 
requirement, e.g., the composition of the unsecured debt and the 
composition of FICC-eligible and non-FICC-eligible collateral; and
    (5) Supplemental reports explaining the components of the numerator 
and denominator of the second long-term liquidity and funding 
requirement, e.g., the composition of the spread duration of the 
unsecured debt and the composition of the spread duration of the 
retained portfolio assets.
    (b) Minimum enterprise management reporting. An Enterprise shall 
include in its internal management reports the Enterprise reports to 
FHFA required under paragraph (a) of this section. Enterprise 
management, in exercise of its prudential management obligations, may 
require additional reporting regarding Enterprise liquidity.
    (c) Public reporting. An Enterprise shall make public monthly 
reports on its liquidity through its monthly volume summaries, 
reporting average and month-end liquidity positions for each of the 
minimum liquidity requirements including key assumptions used in the 
calculation of each of the four liquidity and funding requirements.


Sec.  1241.21  Reporting orders.

    FHFA may, by order, specify or add to the form, manner, or content 
of required reporting. FHFA may amend such reporting orders from time 
to time as appropriate.

Subpart D--Supervisory Framework for Remediating Minimum Liquidity


Sec.  1241.30  Remediation of minimum liquidity shortfall.

    (a) Notification requirements. An Enterprise must notify FHFA in 
writing, beyond the regular daily FHFA reporting, on any business day 
that the Enterprise liquidity position is calculated to be less than 
any of the minimum requirements set forth in Sec.  1241.11 or any 
applicable modified temporary minimum liquidity requirements ordered by 
FHFA. An Enterprise must also notify FHFA in writing on any business 
day that the Enterprise liquidity position is calculated to be less 
than any of the minimum liquidity limits established by the Board of 
the Directors of the Enterprise.
    (b) Liquidity plan. (1) If, as of a Calculation Date, an 
Enterprise's liquidity position is calculated to be less than any 
applicable liquidity requirements, the Enterprise must submit to FHFA a 
plan for achieving compliance with the applicable requirements, unless 
FHFA instructs otherwise.

[[Page 1326]]

    (2) If FHFA determines that the Enterprise is otherwise non-
compliant with applicable requirements of this part, FHFA may require 
the Enterprise to submit a plan for achieving compliance with the 
requirements.
    (3) If the Enterprise is required to submit a plan for achieving 
compliance with applicable requirements of this part, the Enterprise 
must promptly submit its plan to FHFA for approval, consistently with 
Sec.  1236.4.
    (4) The Enterprise plan must include, as applicable:
    (i) An assessment of the Enterprise's liquidity and funding 
profile, and the reasons for the shortfall;
    (ii) The actions that the Enterprise has taken and will take to 
achieve full compliance with this part, including:
    (A) A plan for adjusting the Enterprise's liquidity and funding 
risk profile, liquidity portfolio, liquidity and funding risk 
management practices, and funding sources in order to achieve full 
compliance with this part;
    (B) A plan for remediating any operational or management issues 
that contributed to noncompliance with this part;
    (C) A best estimate time frame for achieving full compliance with 
this part; and
    (D) A commitment to report to FHFA daily on Enterprise progress to 
achieve compliance in accordance with the plan until full compliance 
with this part is achieved.
    (iii) Other considerations or actions as may be required for FHFA 
approval.
    (c) Supervisory and enforcement actions. FHFA may, at its sole 
discretion, take additional supervisory or enforcement actions to 
address non-compliance with the requirements of this part, including 
non-compliance with the minimum liquidity requirements or non-
compliance with any requirement to submit a liquidity plan acceptable 
to FHFA.


Sec.  1241.31  Supervisory determination of temporarily increased 
liquidity requirements.

    (a) Notice. Whenever FHFA determines that, due to economic, market, 
or Enterprise-specific circumstances, temporary modified minimum 
liquidity requirements above those established under this part are 
necessary or appropriate for an Enterprise, FHFA will notify the 
Enterprise in writing of the proposed modified temporarily increased 
Enterprise liquidity requirements, the timeframe by which the 
Enterprise is required to achieve and comply with the proposed 
requirements, and an explanation of why the proposed modified 
Enterprise liquidity requirements are considered necessary or 
appropriate for the Enterprise.
    (b) Response. (1) The Enterprise may respond in writing to any or 
all of the matters addressed in the notice. The response may include 
any information which the Enterprise would like FHFA to consider in 
determining whether the proposed temporarily increased liquidity 
requirements should be established for the Enterprise, and the 
timeframe for compliance with the proposed requirements. Any response 
from the Enterprise must be submitted in writing to FHFA within 30 days 
of the Enterprise receipt of the notice. FHFA may shorten the required 
Enterprise response time, when in the opinion of FHFA, the condition of 
the Enterprise so requires, provided that the Enterprise is informed 
promptly of the shortened response time, or with the consent of the 
Enterprise. In its discretion, FHFA may extend the Enterprise response 
time.
    (2) Failure by the Enterprise to respond within 30 days or such 
other time period as may be specified by FHFA shall constitute a waiver 
of any objections to the proposed modified liquidity requirements or 
the timeframes for compliance.
    (c) Determination. After the close of the Enterprise response time 
period, FHFA will determine, based on a review of the Enterprise 
response and other relevant information, whether the proposed 
requirements should be established for the Enterprise and, if so, the 
timeframe in which the requirements will be effective. FHFA will notify 
the Enterprise of its determination in writing. The determination will 
be accompanied by an order effectuating the modified liquidity 
requirements, which shall be temporary and time-limited to address the 
relevant circumstances. The determination will include a supporting 
explanation, except for a determination not to establish the proposed 
requirements.
    (d) Submission of plan. FHFA's determination may require the 
Enterprise to develop and submit to FHFA, within a time period 
specified, an acceptable plan to reach and maintain the modified 
liquidity requirements.

Subpart E--[Reserved]

Mark A. Calabria,
Director, Federal Housing Finance Agency.
[FR Doc. 2020-28204 Filed 1-7-21; 8:45 am]
BILLING CODE 8070-01-P


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