The federal regulator who oversees Fannie Mae and Freddie Mac has issued a final rule requiring the mortgage giants to develop “credible” resolution plans if they exit from government control.
According to the Federal Housing Finance Agency (FHFA), these resolution plans – also known as “living wills” – would facilitate a rapid and orderly resolution of the government-sponsored enterprises should FHFA be appointed their receiver, or in the event of a GSE collapse.
“After the capital rule, the finalization of the living will rule is one of the last major regulatory pieces needed to give effect to Congress’ intent in HERA. Just like other large financial institutions, these plans will provide Fannie Mae, Freddie Mac and FHFA with a roadmap for preserving business continuity should they fail again,” said FHFA Director Mark Calabria. “This rule helps create a stronger, more resilient housing finance system by protecting taxpayers and the mortgage market from harm if either enterprise fails.”
Under the final rule, Fannie and Freddie must demonstrate how they would maintain core business lines without government support. The FHFA said that the move prevents the firms from facing possible receivership and ensures that the GSEs will indemnify investors against losses or fund their resolution.
Read more: FHFA announces new refinance option for low-income borrowers
The final rule is similar to regulations issued by the FHFA and the Federal Deposit Insurance Corporation under the Dodd-Frank Act, which requires many large financial institutions to submit living wills.