Federal Register - September 27, 2021
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Source: Federal Register
53242
Federal Register / Vol. 86, No. 184 / Monday, September 27, 2021 / Proposed Rules
LSEA%,Ml
=
0
1 - 5.21/o
UnCollatUL%,Ml
1250% +SRIF%,Ml 5%
RWc
%,Ml
= 96.51/o 0
LSEA from the current ERCF:
_
ERCF _LSEA%,Ml -
_
1
0
5.21/o
UnCollatUL%,Ml 1250% + SRIF%,Ml 10%
ERCF RWc -
%,Ml
= 96.5%
where
UnCollatUL%,Ml
= 100%
KA+ AggEL% -A
D -A
- Collat%RIF,Ml
UnCollatUL%,Ml 3% - 0.5%
0.5% - lOO%
$2.Bm
= lOO% 4.5% -
$1,000 4.5% - 0.5% 35%
= 42.5%
SRI Fo/o,Ml
= 100% -
100% max
3% - 0.5%
4.5% - 0.5% , $1,000
$2.Bm
4.5% - 0.5% 35%
= 37.5%
Both the proposed rule and the current ERCF utilize the same methodology when accounting for effectiveness from the timing of coverage by adjusting the Enterprises exposure amount for tranche M1 to reflect the retention of some loss timing risk that was nominally transferred. The loss timing factor addresses the
mismatch between lifetime losses on the 30-year fixed-rate single-family mortgage exposures underlying the CRT
and the CRTs coverage. The loss timing factor for the illustrative CRT with 10
years of coverage and backed by 30-year fixed-rate single-family whole loans and guarantees with OLTVs greater than 60
percent and less than or equal to 80
LTEA%,Ml = ERCF _LTEA%,M1 = 100%
percent is 88 percent for both the capital markets transaction and the loss sharing agreement. For the illustrative CRT, tranche M1s LTEA is 85.6% and is derived by scaling stress loss by the 88% loss timing factor.
LTEA from the proposed rule and the current ERCF:
LTKA,LS + AggEL% -A
K
A EL
A
A+ gg
% -
2.39% + 0.25% - 0.5%
= 100% - - - - - - - - = 85.6%
ERCF OEA% = 100% 1.066674.1667
KA = 95.2%
LTKA,% = max 2.75% + 0.25%
88%0.25%, 0% = 2.39%
The current ERCF includes a third adjustment, the OEA, that the proposed rule omits.
OEA from the current ERCF:
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The next steps convert the effectiveness adjustments into Enterprise exposures. In particular, the adjusted exposure amounts AEAs combine the effectiveness adjustments, aggregate UPB, tranche thickness, and
PO 00000
Frm 00013
Fmt 4702
Sfmt 4702
an adjustment for expected losses to tranche B in the example. For the illustrative CRT, the proposed rule would calculate AEAs as follows:
AEA%,AH = EAE%,AH AggUPB$ DA
= $1,000m 100%4.5% =
$955m
E:FRFM27SEP1.SGM
27SEP1
EP27SE21.006
Where
EP27SE21.005
lotter on DSK11XQN23PROD with PROPOSALS1
2.75% + 0.25%- 0.5%
