(revised 1/31/02 to include text as printed in Federal Register)
Washington, D.C. – Armando Falcon, Jr., Director of the Office of Federal Housing Enterprise Oversight (OFHEO), safety and soundness regulator of Fannie Mae and Freddie Mac (the Enterprises), has sent to the Federal Register a final rule that implements OFHEO's ability to take "Prompt Corrective Action" (PCA) if there were a decline in capital at the Enterprises or to initiate a "Prompt Supervisory Response" (PSR) before capital is impaired.
"This rule represents OFHEO's full commitment to a strong capital and non-capital regulatory regime. The Prompt Supervisory Response, with its noncapital triggers, represents OFHEO's commitment to act quickly to address any potential problems well before they affect the Enterprises' capital positions," said Falcon.
"This rule complements OFHEO's existing supervisory regime which consists of the risk-based capital rule, ongoing examinations and research," Falcon said. "This rule puts in place an orderly, transparent process to ensure the Enterprises are operating safely."
The rule puts in place another component of supervision, one tied to the decline in capital as well as non-capital "tripwires" that would generate automatic supervisory responses from OFHEO before a threat to an Enterprise reaches the level of capital impairment. Tripwires include a significant decline in OFHEO's quarterly house price index, significant decline in Enterprise income or interest margins and a significant increase in the delinquency rates of mortgage loans owned or securitized by an Enterprise.
Neither a triggering event nor use of the process set forth in the rule necessarily indicates that a problem exists at an Enterprise but signifies enough potential for problems as to warrant a Prompt Supervisory Response.
As with other elements of OFHEO's regulatory infrastructure project, the new regulation provides greater clarity and transparency in OFHEO's exercise of its regulatory responsibilities.
Stefanie Johnson (202) 649-3030