The Office of Federal Housing Enterprise Oversight is releasing the first building block it will use to set risk-based capital standards for Fannie Mae and Freddie Mac.
In a proposed rule to be published today, the regulator has outlined the worst-case credit scenario that Fannie Mae and Freddie Mac must be able to withstand for 10 years, while maintaining positive capital.
Under the proposed rule, the mortgage agencies must have enough capital to sustain losses consistent with those they suffered on 30-year, fixed- rate loans originated in 1983 and 1984 in Oklahoma, Arkansas, Mississippi, and Louisiana.
The loss rate on those loans was 9.4%, and the regulator will use that benchmark to determine how loans of other kinds and ages would perform under similar stresses.
Aida Alvarez, director of the oversight office, said it is too soon to say if Fannie Mae and Freddie Mac will require additional capital. That's because the calculation depends on another rule, due out next year as a proposal, that would detail how Fannie Mae and Freddie Mac could buffer themselves against extreme fluctuations in interest rates.