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June 2 -- The Federal Housing Finance Agency (FHFA or the Agency) is adopting a final rule (final rule) that amends the Enterprise Regulatory Capital Framework (ERCF) by introducing new public disclosure requirements for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac, and with Fannie Mae, each an Enterprise). The requirements include quantitative and qualitative disclosures related to risk management, corporate governance, capital structure, and capital requirements and buffers under the standardized approach. This rule is effective August 1, 2022.

Overview of the Final Rule

The final rule implements quantitative and qualitative disclosure requirements related to risk management, corporate governance, capital structure, statutory capital requirements, supplemental capital requirements, including risk-weighted assets calculated under the standardized approach, and capital buffers. In contrast to the U.S. banking framework, which has fewer requirements and buffers under the standard approach than under the advanced approaches, the ERCF requires the Enterprises to satisfy the same capital buffers and leverage requirements under the standard approach and under the advanced approaches. Therefore, the final rule adapts the public disclosure requirements in the U.S. banking framework to reflect the ERCF's standardized approach, blending elements from the U.S. banking framework's standardized and advanced approaches. While the final rule implements disclosure requirements for the ERCF's standardized approach only, FHFA may in the future consider additional disclosure requirements related to the advanced approaches.

In general, the final rule requires quarterly quantitative disclosures and annual qualitative disclosures, provided the Enterprises disclose any material changes to disclosure items as soon as practicable, and no later than the end of the next calendar quarter. As discussed below, Enterprises will publish on their websites their first public disclosure reports under the final rule in the first quarter of 2023. This timeframe will allow the Enterprises to establish the internal reporting and governance functions necessary to fulfill the disclosure requirements and will minimize duplicative reporting by aligning the schedule of annual qualitative disclosures with the Securities and Exchange Commission's (SEC) reporting schedule for Form 10-K.

The final rule balances the potential costs of disclosures with the many benefits, including the benefits of increased market discipline of the Enterprises. By allowing market participants to assess key information about the Enterprises' risk profiles and associated levels of capital, the final rule will promote transparency, increase the amount of information available to the public, and encourage sound risk management practices at the Enterprises. In doing so, the final rule will foster financial stability at the Enterprises and in the broader housing finance market both during and after the Enterprisers' conservatorships. However, enhanced public disclosures could be costly for the Enterprises. The final rule strikes an appropriate balance between the market benefits of disclosure and the additional financial burden to the Enterprises by permitting the Enterprises to fulfill many of the disclosure requirements by relying on similar disclosures made in accordance with accounting standards or SEC mandates. When an Enterprise fulfills a disclosure requirement using information provided in a different regulatory report, the Enterprise must provide a summary table that specifically indicates where the cross-referenced disclosures may be found and provide a reconciliation of regulatory capital elements as they relate to its balance sheet in any audited consolidated financial statements should there be differences between the accounting or other disclosures and the disclosures required under the final rule.

As proposed, the final rule also introduces a materiality concept for items not explicitly identified as required disclosures. The materiality concept is designed to ensure that improvements in public disclosures come not only from regulatory standards, but also as a result of efforts made by management at the Enterprises to communicate advances in risk management processes and internal reporting systems to public shareholders and other market participants. In a manner similar to the requirements for U.S. banking organizations, the final rule requires an Enterprise to decide which additional disclosures are relevant based on this materiality concept. Information is material if its omission or misstatement could change or influence the assessment or decision of a user relying on that information for the purpose of making investment decisions. Similarly, the final rule requires an Enterprise to have a formal disclosure policy approved by its board of directors that addresses the Enterprise's approach for determining which disclosures are necessary and appropriate. The policy must address internal controls, disclosure controls, and procedures.

Table of Contents

I. Introduction
II. Overview of the Final Rule
III. General Overview of Comments on the Proposed Rule
IV. Public Disclosure Requirements
     A. General Requirements
     B. Standardized Approach
     C. Market Risk
V. Frequency of Disclosures
VI. Compliance Dates
VII. Location of Disclosures and Audit Requirements
VIII. Proprietary and Confidential Information
IX. Paperwork Reduction Act
X. Regulatory Flexibility Act
XI. Congressional Review Act


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