1306 Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 

By order of the Board of Governors of the 

Federal Reserve System. 

Margaret McCloskey Shanks, 

Deputy Secretary of the Board. 

[FR Doc. 2020–28755 Filed 1–7–21; 8:45 am] 

BILLING CODE 6210–01–P 

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. 

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: 

• Agency Website: www.fhfa.gov/ 

open-for-comment-or-input. 

• 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 

RegComments@fhfa.gov to ensure 

timely receipt by FHFA. Include the 

following information in the subject line 

of your submission: Comments/RIN 

2590–AB09. 

• 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. 

• 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, 

Jamie.Newell@fhfa.gov; Ming-Yuen 

Meyer-Fong, Associate General Counsel, 

Office of General Counsel, (202) 649– 

3078, Ming-Yuen.Meyer-Fong@fhfa.gov; 

or Mark Laponsky, Deputy General 

Counsel, Office of General Counsel, 

(202) 649–3054, Mark.Laponsky@

fhfa.gov. 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 WrongWay 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 LessLiquid 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 


tkelley on DSKBCP9HB2PROD with PROPOSALS
Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 1307 

1Following 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. 

2See 12 CFR part 1236 (Prudential Management 

and Operations Standards). 

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). 

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 


tkelley on DSKBCP9HB2PROD with PROPOSALS
1308 Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 

3See 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). 

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. 

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 § 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 

§ 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-bycase 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 longerterm 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 lessliquid assets with longer-term debt and 

thus avoid having to sell such lessliquid 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. 

• 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 


tkelley on DSKBCP9HB2PROD with PROPOSALS
Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 1309 

4See 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. 

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. 

• 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. 

• 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

• 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 


tkelley on DSKBCP9HB2PROD with PROPOSALS
1310 Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 

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 noncompliant 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 noncompliance. 

In addition, if FHFA determines that, 

due to economic, market, or Enterprisespecific 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 § 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, Enterprisespecific, 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: 

• 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; 

• 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; 

• 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 

• A second, model-based long-term 

liquidity and funding requirement based 

on an Enterprise’s spread duration of its 


tkelley on DSKBCP9HB2PROD with PROPOSALS
Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 1311 

5Appropriate adjustment should be made for the 

number of days for non-UMBS MBS, such as MBS 

backed by adjustable rate mortgages and nonexchanged Freddie Mac Participation Certificates 

(PCs). 

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 intermediateterm (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 creditenhancement 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

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. 


tkelley on DSKBCP9HB2PROD with PROPOSALS
1312 Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 

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-tomaturity’’ 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: 

• 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 


tkelley on DSKBCP9HB2PROD with PROPOSALS
Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 1313 

unsecured debt; and (ii) $10 billion (i.e., 

the Daily Excess Requirement). 

• 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 FICCeligible 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 nonFICC-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 singlefamily business, including the 

Temporary Payroll Tax Cut 

Continuation Act of 2011 fees. Other 

sources of cash, like existing To-beannounced (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 reperforming 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] 

Day Cash outflows Cash inflows Daily net cash 

outflow 

Daily cumulative 

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) 


tkelley on DSKBCP9HB2PROD with PROPOSALS
1314 Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 

TABLE 1—EXAMPLE DETERMINATION OF HIGHEST DAILY CUMULATIVE NET CASH OUTFLOW—Continued 

[$B] 

Day Cash outflows Cash inflows Daily net cash 

outflow 

Daily cumulative 

net cash outflow 

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 singlefamily 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 VariableRate 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 


tkelley on DSKBCP9HB2PROD with PROPOSALS
Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 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 singlefamily 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: 

• Day 1 can be securitized and sold 

on day 61; 

• Day 2 can be securitized and sold 

on day 61; 

• Day 31 can be securitized and sold 

on day 61; 

• Day 45 can be securitized and sold 

on day 75; and 

• 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 


tkelley on DSKBCP9HB2PROD with PROPOSALS
1316 Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 

6The 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. 

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: 

• Day 1 can be securitized and sold 

on day 181; 

• Day 31 can be securitized and sold 

on day 211; and 

• 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. 

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 reperformance 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 


tkelley on DSKBCP9HB2PROD with PROPOSALS
Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 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 shortfall 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 longerterm 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 


tkelley on DSKBCP9HB2PROD with PROPOSALS
1318 Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 

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 longterm 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 longterm 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 lessliquid assets. 

a. Long-Term Unsecured Debt to LessLiquid 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 threemonth 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? 


tkelley on DSKBCP9HB2PROD with PROPOSALS
Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 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 threemonth 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: 

• 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. 

• 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 singlefamily 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. 

• 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 CreditLinked 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. 

• 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 


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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 shortterm, 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 noncompliance 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 


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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 Enterprisespecific 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 

■ 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 

§ 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. 

§ 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 § 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. 


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(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. 

§ 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 § 1241.10(d). 

Spread Duration of Unsecured Debt 

has the meaning set forth in 

§ 1241.11(c)(2)(ii)(A). 

Spread Duration of Retained Portfolio 

Assets has the meaning set forth in 

§ 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 trustrelated 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 

§ 1241.11(c)(1)(ii). 

Total Long-term Unsecured Debt has 

the meaning set forth in 

§ 1241.11(c)(1)(i). 

Subpart B—Required Minimum 

Enterprise Liquidity 

§ 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 § 1241.11(a) and (b) 

for a 30-day period and a 365-day 

period, and under § 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 § 1241.11(a) and (b) 

for a 30-day period and a 365-day 

period, and under § 1241.11(c) for the 

long-term liquidity requirements, as of 


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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 § 1241.11(a) and (b) 

for a 30-day period and a 365-day 

period, and under § 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) Singlefamily. 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 


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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. 

§ 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 

§ 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 reperforming 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 Lessliquid 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 § 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. 


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(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 threemonth 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. 

§ 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 

§ 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. 

§ 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 

§ 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 

§ 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. 


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1326 Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules 

(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 § 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 noncompliance 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. 

§ 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 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1242 

RIN 2590–AB13 

Resolution Planning 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Federal Housing Finance 

Agency (FHFA) is seeking comment on 

a proposed rule that would require 

Fannie Mae and Freddie Mac (the 

Enterprises) to develop plans to 

facilitate their rapid and orderly 

resolution in the event FHFA is 

appointed receiver. A resolution 

planning rule is an important part of 

FHFA’s on-going effort to develop a 

robust prudential regulatory framework 

for the Enterprises, including capital, 

liquidity, and stress testing 

requirements, as well as enhanced 

oversight, which will be critical to 

FHFA supervision of the Enterprises 

after they exit the conservatorships. In 

addition, a resolution plan as proposed 

to be required would support FHFA if 

appointed as receiver to, among other 

things, minimize disruption in the 

national housing finance markets by 

providing for the continued operation of 

an Enterprise’s core business lines by a 

limited-life regulated entity (LLRE); 

ensure that investors in mortgagebacked securities guaranteed by the 

Enterprises and in Enterprise unsecured 

debt bear losses in accordance with the 

priority of payments set out in the 

Safety and Soundness Act while 

minimizing unnecessary losses and 

costs to these investors; and, help foster 

market discipline in part through FHFA 

publication of ‘‘public’’ sections of 

Enterprise resolution plans. 

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–AB13, by any one of 

the following methods: 

• Agency Website: https://

www.fhfa.gov/open-for-comment-orinput. 

• 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 

RegComments@fhfa.gov to ensure 

timely receipt by FHFA. Include the 

following information in the subject line 

of your submission: Comments/RIN 

2590–AB13. 


tkelley on DSKBCP9HB2PROD with PROPOSALS