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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules
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held, and to build reserves for projected credit losses from their guarantees. In September 2008, when it was apparent that substantial deterioration in the housing market would leave the Enterprises unable to fulfill their statutory purposes and mission without government intervention, FHFA
appointed itself conservator of each Enterprise.19 At the same time, as conservator for each Enterprise, FHFA
entered into the Senior Preferred Stock Purchase Agreements PSPAs with the U.S. Department of the Treasury Treasury to provide each Enterprise financial support up to a specified amount.20 This limited support, which continues to the present, permits the Enterprises to meet their outstanding obligations and continue to provide liquidity to the mortgage markets while maintaining a positive net worth. The Enterprises required a combined $187
billion dollars in Treasury support from 2008 to 2012. However, Fannie Mae and Freddie Mac have not requested a major draw from the Treasury since 2012.21
FHFA appointed itself as conservator of each Enterprise in September 2008, instead of receiver, in part due to concerns about potential market instability that could have resulted from an unprecedented receivership proceeding for which FHFA and the Enterprises had not planned or prepared, which could have been compounded by market perception that all Enterprise debt was backed to some extent by the U.S. government.22 Until July 2008, the Safety and Soundness Act did not provide for Enterprise receivership and there was no process for separating Enterprise operations between functions that were necessary to maintaining the stability of the housing market and those which were not, leaving the regulator and policymakers with limited options. The Enterprise conservatorships have now lasted for over twelve years, 19 See https www.fhfa.gov/Media/PublicAffairs/
Pages/Statement-of-FHFA-Director-James-B
Lockhart-at-News-Conference-AnnnouncingConservatorship-of-Fannie-Mae-and-FreddieMac.aspx.
20 See supra, fn 6.
21 Due to corporate tax law changes in 2017 that resulted in write-downs to the value of deferred tax assets, Fannie Mae received a $3.7 billion dollar draw from Treasury in 2018. This was a one-time accounting event.
22 See https www.fhfa.gov/Media/PublicAffairs/
Pages/Statement-of-FHFA-Director-James-B
Lockhart-at-News-Conference-AnnnouncingConservatorship-of-Fannie-Mae-and-FreddieMac.aspx; https www.fhfa.gov/Media/
PublicAffairs/Pages/Statement-of-OFHEO-DirectorJames-B-Lockhart-in-Support-of-Secretary-Paulson,Administration-and-the-Federal-Reserve-in-T.aspx;
and, https www.treasury.gov/press-center/pressreleases/pages/hp1129.aspx.

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considerably longer than any conservatorship under the auspices of the FDIC or of the Resolution Trust Corporation, established to resolve failed thrifts following the 1989 thrift crisis.23
FHFAs current Strategic Plan includes the objective of responsibly ending the conservatorships.24 In preparation, FHFA is developing a more robust prudential regulatory framework for the Enterprises, including capital, liquidity, and stress testing requirements, and enhanced supervision. The Treasury Housing Reform Plan noted the importance of developing a credible resolution framework for the Enterprises to protect taxpayers, enhance market discipline, and mitigate moral hazard and systemic risk.25 FHFA believes this proposed rule is an important part of developing such a framework and is a key step toward the robust regulatory postconservatorship framework FHFA is developing. Further, FHFA concurs with Treasurys enumeration of the benefits of a credible resolution framework. The importance of such a framework for the Enterprises is heightened by the historical precedent set by the decision to place each Enterprises in conservatorship instead of receivership. FHFA also notes that additional changes may be warranted, such as requiring each Enterprise to maintain a minimum amount of lossabsorbing capacity in the form of subordinated or convertible debt that could be bailed in should the Enterprise encounter significant financial distress, which could facilitate the establishment of a viable LLRE.26
FHFA is considering a separate rulemaking that would require each Enterprise to maintain minimum amounts of long-term debt and other loss-absorbing capacity requirements.
In developing the proposed resolution planning framework, FHFA has considered the resolution planning framework of the FDIC for large IDIs and 23 By comparison, the RTC closed 706 failed thrift institution conservatorships from its establishment in 1989 through June 1995. See FDIC, Managing the Crisis: The FDIC and RTC Experience, 19801994
1998, vol. 1, 27.
24 See https www.fhfa.gov/AboutUs/Reports/
ReportDocuments/FHFA_StrategicPlan_2021-2024_
Final.pdf.
25 See U.S. Department of the Treasury, Housing Reform Plan September, 2019, available at https
home.treasury.gov/system/files/136/TreasuryHousing-Finance-Reform-Plan.pdf.
26 To facilitate a credible resolution planning framework, the Housing Reform Plan recommends requiring each Enterprise to maintain a minimum amount of total loss-absorbing capacity that could be bailed-in in the event of financial distress. Id.
Such a requirement is beyond the scope of the current proposal.

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a framework jointly established by the FDIC and the Federal Reserve Board FRB pursuant to section 165d of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 the DFA section 165 rule, which covers large, interconnected bank holding companies and nonbank financial companies designated by the Financial Stability Oversight Council FSOC for enhanced supervision by the FRB.
While there would be significant differences among FDIC resolution of an IDI, resolution of a bank holding company in a bankruptcy proceeding, and FHFA resolution of an Enterprise, the FDICs IDI rule and the DFA section 165 rule provided helpful context for FHFAs consideration of the goals and requirements of an appropriate Enterprise resolution planning framework in view of FHFAs statutory authorities and mandates.27
C. Purpose of and Need for Resolution Planning Considering the Enterprises statutory purposes and mission and FHFAs statutory duties and authorities, the goals of Enterprise resolution planning are to facilitate the continuation of Enterprise functions that are essential to maintaining stability in the housing market in the establishment of an LLRE
by FHFA as receiver and to allocate losses to creditors in the order of their priority. The Enterprises combined single-family book of business is in excess of $5 trillion and the combined multifamily book is approximately $650
billion. Given the Enterprises statutory obligation to provide liquidity to the secondary mortgage market, their market dominance in providing such liquidity, and the potentially significant impact financial stress in the secondary mortgage market could have on the national housing finance markets, financial stability, and the broader economy,28 transferring Enterprise assets and liabilities to and continuing functions in an LLRE requires careful consideration and tailoring to the specific function of the Enterprises, despite the Enterprises limited business lines relative to other large and complex financial institutions and simple corporate structures.
To facilitate FHFAs role as receiver, the proposed rule would establish a 27 In this notice of proposed rulemaking, FHFA
refers to the DFA section 165 rule as applying to bank holding companies, rather than that rules Covered Companies, for ease of reading and because currently there are no FSOC-designated nonbank financial companies.
28 See https home.treasury.gov/system/files/261/
Financial-Stability-Oversight-Councils-Statementon-Secondary-Mortgage-Market-Activities.pdf.

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