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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules
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private investors.4 Structures of CRT
transactions vary.
The Enterprises mortgage business lines require administration of cashflows derived from payments of principal and interest on underlying mortgage loans. The Enterprises contract with loan servicers often, sellers of loans to an Enterprise who retain mortgage servicing rights to administer payments from mortgagors. The Enterprises also jointly own and contract with Common Securitization Solutions, LLC CSS, which operates a common securitization platform for single-family mortgages and performs certain back-office and administration operations previously conducted by the Enterprises directly and separately. A
common securitization platform also facilitates issuance of a common security, the uniform mortgage-backed security UMBS, intended to promote liquidity in the secondary mortgage market and eliminate pricing differences between Fannie Mae and Freddie Mac single-family securities. By contrast, each Enterprise securitizes, issues, and administers multifamily MBS for its own account, using distinct collateralization structures.
While there are similarities between the Enterprises business and that of the Government National Mortgage Association Ginnie Mae, the Enterprises guarantee of timely payment of principal and interest to investors is not backed by the full faith and credit of the United States.5 The Enterprises are required to state in all of their obligations and securities that such obligations and securities, including the interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or any agency or instrumentality thereof other than the Enterprise itself.6
4 See https www.fhfa.gov/AboutUs/Reports/
Pages/Overview-of-Fannie-Mae-and-Freddie-MacCredit-Risk-Transfer-Transactions-8212015.aspx, and other reports at https www.fhfa.gov/
PolicyProgramsResearch/Policy/Pages/Credit-RiskTransfer.aspx.
5 Compare 12 U.S.C. 1717a2A, 1455h2, and 1719d; see also id. 45014 and 4503.
6 Id. 1455h2 and 1719d. Since September 2008, the Enterprises have been provided explicit, but limited, support by the U.S. Department of the Treasury through Senior Preferred Stock Purchase Agreements PSPAs to assure continuing operation of the Enterprises in conservatorships. See https
www.fhfa.gov/Conservatorship/Pages/SeniorPreferred-Stock-Purchase-Agreements.aspx. The PSPAs currently remain in place, although they are meant to be temporary, and the PSPA for each Enterprise establishes a limit or cap on the amount of support Treasury will provide, so they are not an exercise of the full faith and credit of the United States. More information on the Enterprise conservatorships and the PSPAs is set forth below in section B, FHFA Appointment as Conservator of the Enterprises; Actions Necessary to End the Conservatorships.

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Nonetheless, because of the Enterprises federal statutory charters and some federally conferred business privileges,7
pricing of Enterprise obligations has reflected investor perception of a full faith and credit guarantee.8 Investors may have been relying on this perception when deciding to invest in the Enterprises debt and MBS at borrowing costs near that of debt issued by the federal government, despite the Enterprises high leverage. That same perception may encourage typically conservative investors, including foreign sovereigns, to purchase Enterprise obligations and securities.
The perception of an implicit guarantee thus undermines market discipline and incentivizes risk taking and growth at the Enterprises.
Enterprise Supervision; Resolution.
As regulator and supervisor of the Enterprises, FHFAs duties include ensuring that the Enterprises operate in a safe and sound manner; foster liquid, efficient, competitive, and resilient national housing finance markets; and, operate in a manner that is consistent with the public interest.9 In common with other federal financial safety and soundness supervisors, FHFA is authorized to examine the Enterprises and to require regular and special reports from them; to establish capital, liquidity, and other prudential management and operations standards;
to require the Enterprises to submit corrective plans and take corrective actions if certain standards are not met;
and, to bring enforcement actions against the Enterprises and certain entity-affiliated parties.10
FHFA is also authorized to appoint itself as conservator or receiver of an Enterprise if statutory grounds are met.11 When appointed receiver of an Enterprise, FHFA must establish an LLRE which immediately succeeds to the Enterprises federal charter and thereafter operates subject to the Enterprises authorities and duties.12
7 The Enterprises may be depositories of public money; are exempt from almost all federal, state, and local taxation; and, are not required to be licensed to do business in any state. Id. 1452d and e, 1456a, 1723ac2, and 1723aa. Enterprise securities are exempt securities within the meaning of laws administered by the Securities and Exchange Commission, and the Secretary of the Treasury may purchase their obligations and may do so with public money. Id. 1455c and g, 1719c and e, and 1723c.
8 See https www.fhfa.gov/
PolicyProgramsResearch/Research/Pages/WorkingPaper-07-4.aspx.
9 12 U.S.C. 4513a1B.
10 See generally, id. 4513b, 4514, 4517, 4611, 4622, and 4631.
11 Id. 4617a.
12 Id. 4617i1Aii and 2A.

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FHFAs authorities as receiver or conservator were modeled on those provided to the Federal Deposit Insurance Corporation FDIC through the Federal Deposit Insurance Act, and the concept of an LLRE is derived from an FDIC-established bridge bank.13 FDIC
resolutions, however, involve insured depository institutions IDIs that pay into the FDICs Deposit Insurance Fund DIF and receive, for the benefit of deposit customers, FDIC deposit insurance on deposit amounts up to a certain limit.14 The FDIC may use the DIF when conducting a resolution and may replenish the DIF through assessments paid by thousands of IDIs.15
To enable the FDIC to understand and anticipate the operational, managerial, financial and other aspects of the IDI
that would complicate efforts by the FDIC as receiver to . . . determine and maximize franchise value, and conduct a least-cost resolution, the FDIC has adopted a regulation requiring larger IDIs to engage in resolution planning.16
In contrast to FDIC resolutions, there is no fund similar to the DIF available to FHFA when conducting an Enterprise resolution.17 Because Enterprise obligations and securities are not backed by the full faith and credit of the United States and because there is no DIF-like fund for Enterprise resolution, resolution of an Enterprise by FHFA
necessarily would involve only the Enterprises resources available to absorb losses and satisfy investor and creditor claimsEnterprise assets, capital and capital-like instruments, and contracts that transfer risk of loss to third parties.
B. FHFA Appointment as Conservator for the Enterprises; Actions Necessary to End the Conservatorships The 20072008 financial crisis began with stresses in the subprime and Alt-A mortgage market and grew to the traditional mortgage market and other financial sectors in the United States and globally.18 As asset prices fell and other large financial firms failed, it became increasingly difficult for the Enterprises to issue debt to fund their retained portfolios, to raise new capital to cover mark-to-market losses from private label securities the Enterprises 13 Compare, 12 U.S.C. 1821c and 4617b;
1821n and 4617i.
14 See generally, 12 U.S.C. 1821.
15 12 U.S.C. 1817b and 1821a4.
16 75 FR 27464, 27465 May 17, 2010; see also 12 CFR 360.10 2020.
17 See generally, 12 U.S.C. 1817b and 1821a4;
compare 12 U.S.C. 1455c2, 1719c, and 4516e.
18 See 83 FR 33312, 33317 July 17, 2018 FHFA
Notice of proposed rulemaking on Enterprise Capital Requirements, which discusses 20072008
financial crisis and the Enterprises.

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