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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules FHFAs rapid and orderly resolution of the Enterprise in a receivership, including setting forth actions that an Enterprise would take to improve its resolvability and identified impediments to resolvability that may be beyond the Enterprises ability to address or control.
FHFA would review a received and complete resolution plan and provide notice to the Enterprise identifying deficiencies in its resolution plan, if any, as well as actions or changes set forth by the Enterprise in its resolution plan that FHFA agrees could facilitate a rapid and orderly resolution. FHFA may also provide other feedback, such as on the timing of actions or changes to be undertaken by the Enterprise. An Enterprise receiving a notice of deficiency would be required to submit a revised resolution plan that corrects the deficiency, or addresses what actions will be taken to correct it.
The resolution planning process proposed is an iterative one, involving episodic and periodic reviews and updates as appropriate of business lines, and periodic development of revised resolution plans. FHFA would employ its examination authority to assess Enterprise compliance with any final rule on resolution planning and, importantly, to assess or verify Enterprise capabilities that would be critical to facilitate resolution by FHFA, including timely production of accurate information from management information systems. The proposed rule is discussed in greater detail below.

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B. Identification of Core Business Lines and Associated Operations and Services Proposed definition of core business line; FHFA considerations on scope. The resolution planning process begins with identification of Enterprise core business lines and associated operations and services. Because the statutory outcome of Enterprise resolution is establishment of an LLRE
that succeeds to the charter of the Enterprise and continues its operations on the same statutory basis as the Enterprise, FHFA proposes to define a core business line as each business line of the Enterprise that plausibly would continue to operate in an LLRE, considering the purposes, mission, and authorized activities of the Enterprise set forth in its authorizing statute and the Safety and Soundness Act.33 Core 33 As defined in the Safety and Soundness Act, an Enterprises authorizing statute is its charter act the Federal National Mortgage Association Charter Act for Fannie Mae, and the Federal Mortgage Loan Corporation Act for Freddie Mac.
See 12 U.S.C. 45023. In this notice of proposed
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business line would include operations, services, functions, and supports associated with the business line and necessary for the business lines continuation in the LLRE.
As an example of how the proposed core business line definition could operate, application of the concept may result in identification of two core business lines for each Enterprise, a single-family business line and a multifamily business line. Within the single-family business line, associated operations, services, functions, and supports may include purchasing single-family mortgage loans for cash as well as related operations such as loan servicing, credit enhancement, securitization support, information technology support and operations, and essential human resources and personnel support. When identifying associated operations, services, functions, and supports, an Enterprise should consider those functions that it performs directly and those that are performed by an affiliate or provided by a third party, including third parties whose direct relationship is with the borrower, but whose function may benefit an Enterprise such as the provider of borrower loan-level mortgage insurance.
FHFA notes that the FDIC IDI and DFA section 165 resolution planning rules also require IDIs and bank holding companies, respectively, to identify core business lines but define such business lines as those whose failure, in the view of the institution or company, would result in material loss of revenue, profit, or franchise value. FHFA
understands such concepts, in the context of those rules, to frame core business lines as those whose value the receiver should prioritize preserving in resolution or for which the receiver may obtain a higher price or find a ready market should such a business line be sold in a resolution. FHFAs proposed definition of core business line is different from the definition in the IDI
and DFA section 165 resolution planning rules, considering that the Safety and Soundness Act requires FHFA to establish an LLRE for, and the LLRE to succeed to the charter of, an Enterprise in receivership.
Consequently, FHFA believes it appropriate for an Enterprise resolution planning rule to focus on continuation of core business lines in an LLRE, and sees less need for the identification of Enterprise core business lines to consider the impact of failure on revenue, profit, or franchise value.
rulemaking, FHFA may use the terms authorizing statute and charter act interchangeably.

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FHFA requests comment on whether the proposed definition of core business line should be expanded to include consideration of the impact of failure e.g., whether the definition of core business line should be revised to state each business line of the Enterprise whose failure would result in a material loss of revenue, profit, or franchise value or would impair the Enterprises ability to fulfill its purposes, mission, or obligations under in its authorizing statute and the Safety and Soundness Act..
FHFA believes that the scope of the proposed core business line definition, when considering the Enterprises statutory purposes and missions and relatively simple corporate structures, makes it unnecessary for an Enterprise resolution planning rule to require identification of critical operations which bank holding companies subject to the DFA section 165 rule must identify or of critical services which IDIs subject to the FDIC IDI rule must identify. Enterprise resolution planning is a process distinct from the identification of operations, services, functions, and supports associated with an Enterprise core business line. Likewise, FHFA does not believe it would be necessary to define the terms critical operations or critical services, in an Enterprise resolution planning rule, for reasons set forth below.
In the DFA section 165 rule, critical operations is defined as those operations of the bank holding company, including associated services, functions and support, the failure or discontinuance of which would pose a threat to the financial stability of the United States. 34 Unlike any bank holding company, each Enterprise was created by statute to perform limited functions in support of a particular market.
In that light, for purposes of resolution planning, it would be difficult for FHFA to conclude that a business line integral to an Enterprises statutory purposes and mission could be discontinued without threatening the stability of the secondary mortgage market or another market an Enterprise is required to serve; each Enterprises appropriate functions, as carried out through its core business lines, are in service to its purposes and mission.35 In other words, if critical operations understood with regard to the 34 12

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fn 1. FHFA also notes that discontinuation of mission-related functions could be disruptive to other markets, such as markets that are underserved.
35 Supra,
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