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Federal Register / Vol. 86, No. 84 / Tuesday, May 4, 2021 / Rules and Regulations
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balance sheets. In both their portfolio and guarantee businesses, the Enterprises assume credit risk on purchased or securitized loans in MBS
swap and cash programs, the Enterprise assumes the credit risk in exchange for a guarantee fee.
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.4 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.5
Nonetheless, because of the Enterprises federal statutory charters and some federally conferred business privileges,6
pricing of Enterprise obligations suggested, even before the provision of explicit Treasury support at the time of the financial crisis, that investors perceive a full faith and credit guarantee.7 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 4 Compare 12 U.S.C. 1717a2A, 1455h2, and 1719d; see also id. 45014 and 4503.
5 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, and each PSPA
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.
6 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 U.S. 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.
7 See https www.fhfa.gov/PolicyPrograms Research/Research/Pages/Working-Paper-074.aspx.

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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.8 FHFA is also authorized to appoint itself as conservator or receiver of an Enterprise if statutory grounds are met.9 When appointed receiver of an Enterprise, FHFA must establish a limited-life regulated entity LLRE, which immediately succeeds to the Enterprises federal charter and thereafter operates subject to the Enterprises authorities and duties.10
Because Enterprise obligations and securities are not backed by the full faith and credit of the United States, 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.
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.11 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 or Treasury Department to provide each Enterprise financial support up to a specified amount.12 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 Enterprise conservatorships have lasted for over twelve years, considerably longer than any conservatorship under the auspices of the Federal Deposit Insurance Corporation FDIC or the Resolution Trust Corporation established to resolve failed thrifts following the 1989
thrift crisis and since abolished.13
8 12

U.S.C. 4513a1B.
4617a.
10 Id. 4617i1Aii and 2A.
11 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.
12 See supra, fn. 4.
13 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.
9 Id.

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FHFAs current Strategic Plan includes the objective of responsibly ending the conservatorships.14 In preparation, FHFA is developing a more robust prudential regulatory framework for the Enterprises, including capital, liquidity, and stress testing requirements, and enhanced supervision.
FHFA believes a resolution planning rule is also an important part of developing such a framework and is a key step toward the robust regulatory post-conservatorship framework FHFA
is developing. The Treasury Departments 2019 Housing Reform Plan also 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.15 FHFA
shares that Plans view of the benefits of a credible Enterprise resolution framework. Finally, by providing that the charter of an Enterprise that has been placed into receivership be transferred immediately to the LLRE
upon its organization 16 and prohibiting FHFA from terminating the charter,17
the Safety and Soundness Act effectively requires that an Enterprise resolution through receivership be viable. Resolution planning would be a key element of implementing that statutory mandate, and thus of meeting congressional intent.
For the foregoing reasons, FHFA
proposed a rule that would require the Enterprises to develop credible resolution plans and submit them to FHFA for review, set forth information and other content requirements for such plans, and establish procedures for submission and review.18 The proposed rule is summarized for convenience below.
In developing an Enterprise resolution planning framework, FHFA has considered the resolution planning framework of the FDIC for large insured depository institutions IDIs and 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 14 See https www.fhfa.gov/AboutUs/Reports/
ReportDocuments/FHFA_StrategicPlan_2021-2024_
Final.pdf.
15 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.
16 See 12 U.S.C. 4617i2.
17 See 12 U.S.C. 4617k.
18 See 86 FR 1326 Jan. 8, 2021.

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