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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules the Enterprises to formulate their projections assuming stressed conditions corresponding to the more severe of FHFAs DFAST assumptions or other supervisory assumptions as ordered by FHFA.

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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
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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 Maes 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 365day 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

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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 365day 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
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