FHFA proposes new disclosure requirements for Fannie and Freddie

WASHINGTON — The Federal Housing Finance Agency is proposing public disclosure requirements for Fannie Mae and Freddie Mac that would closely align with international standards for large banks.

Under the proposed requirements, the government-sponsored enterprises would have to disclose risk management, corporate governance and regulatory capital information to market participants on a quarterly basis, in order to provide more transparency into each company’s business practices.

“These additional public disclosure requirements are intended to promote market discipline and prudent risk management practices at the Enterprises,” Sandra Thompson, the acting director of the FHFA, said in a statement. “These changes also will provide market participants with more information to assess an Enterprise’s risks and capital adequacy.”

The standards would closely match those laid out in the international Basel III accords, which ensure that large banks maintain adequate capital and risk management processes and that they are transparent with their stakeholders.

The FHFA requirements would also likely offer more insight into how Fannie and Freddie are complying with the agency’s capital framework. The capital regime, finalized under former FHFA Director Mark Calabria, lays out how much money the companies must hold to protect from losses once they are released from conservatorship.

In September, Thompson proposed revising the framework in order to encourage the transfer of risk to private investors and make the framework’s leverage requirements more dynamic.

In its notice of proposed rulemaking published Wednesday, the FHFA said that the public disclosure requirements would complement the capital rule’s goals of having the GSEs “provide stability and ongoing assistance to the secondary mortgage market across the economic cycle, in particular during periods of financial stress.”

The agency acknowledged that the new disclosure requirements would “necessarily be somewhat costly” for Fannie and Freddie, but said it believed that the potential benefits would outweigh the costs.

“With the proposed rule, FHFA aims to strike an appropriate balance between the market benefits of disclosure and the additional financial burden to an Enterprise that provides the disclosures,” the proposal said.

The FHFA is seeking to have the GSEs comply with the proposed disclosure requirements in at least six months. The agency is also accepting public comment on the proposal for 60 days after it is published in the Federal Register.