FSOC to look more closely at secondary mortgage market

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WASHINGTON — The Financial Stability Oversight Council is launching a review of the secondary mortgage market as part of the council's recent shift to an activities-based approach to identifying systemic risks.

The FSOC — created by the Dodd-Frank Act to monitor the financial system for looming risks and currently chaired by Treasury Secretary Steven Mnuchin — finalized a a new process in December that moved emphasis away from designating "systemically important" nonbanks for tougher regulation.

Instead, the council focuses on potentially risky activities in a certain sector across multiple institutions, and if necessary coordinates with FSOC members and other agencies to implement actions to address such risk. The panel still retains authority to designate individual firms as "systemically important financial institutions," which subjects them to bank-like supervision from the Federal Reserve Board.

Little detail was provided about the secondary mortgage market review, but it likely includes a focus on Fannie Mae and Freddie Mac.

The FSOC — chaired by Treasury Secretary Steven Mnuchin — finalized a a new process in December that moved emphasis away from designating "systemically important" nonbanks for tougher regulation.
The FSOC — chaired by Treasury Secretary Steven Mnuchin — finalized a a new process in December that moved emphasis away from designating "systemically important" nonbanks for tougher regulation.

Federal Housing Finance Agency Director Mark Calabria — an FSOC member — has previously called on the council to weigh designating Fannie and Freddie as SIFIs.

"I applaud Secretary Mnuchin and the Financial Stability Oversight Council for initiating an activities-based review of the secondary mortgage market," said Calabria in a statement Tuesday. “As demonstrated by the 2008 financial crisis and again by COVID-19, Fannie Mae and Freddie Mac must be well capitalized in order to support the mortgage market during a stressed environment."

A SIFI designation comes with enhanced supervision from the Federal Reserve and supplementary regulatory requirements like stress tests and higher capital standards.

After it was formed by the Dodd-Frank, the FSOC designated four insurance giants as nonbank SIFIs, but all four have since been de-designated.

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FSOC FHFA Mark Calabria Secondary market Steven Mnuchin Fannie Mae Freddie Mac SIFIs GSEs
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