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FSOC statement on secondary mortgage market review

The Treasury Department announced on Friday that the Financial Stability Oversight Council had voted unanimously to approve a statement summarizing its review of the secondary mortgage market. The Council’s review focused in particular on the activities of Fannie Mae and Freddie Mac. In conducting the review, the Council applied the framework for an activities-based approach described in the interpretive guidance on nonbank financial company determinations issued by the Council in December 2019.

The Council’s review noted the central role the Enterprises continue to play in the national housing finance markets, and found any distress at the Enterprises that affected their secondary mortgage market activities, including their ability to perform their guarantee and other obligations on their mortgage-backed securities (MBS) and other liabilities, could pose a risk to financial stability, if risks are not properly mitigated. The Council’s review also considered whether the regulatory framework of the Federal Housing Finance Agency (FHFA) would adequately mitigate this potential risk posed by the Enterprises.

The council encouraged—

  • the FHFA and other regulatory agencies to coordinate and take other appropriate action to avoid market distortions that could increase risks to financial stability
  • the FHFA to consider he relative merits of alternative approaches for more dynamically calibrating the capital buffers
  • the FHFA to ensure high-quality capital by implementing regulatory capital definitions that are similar to those in the U.S. banking framework and to require the Enterprises to be sufficiently capitalized to remain viable as going concerns during and after a severe economic downturn
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