Risk-Based Capital

The Office of Federal Housing Enterprise Oversight (OFHEO) is directed by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to develop a risk-based capital regulation for Freddie Mac and Fannie Mae (collectively, the Enterprises). The regulation specifies the risk-based capital stress test that will determine the amount of capital an Enterprise is required to hold to maintain positive capital throughout a ten-year period of economic stress. The results of the risk-based capital stress test will be used to determine each Enterprise's risk-based capital requirements and, along with the minimum capital requirement, to determine each Enterprise's capital classification for purposes of possible supervisory action. This Notice of Proposed Rulemaking is the second of two notices of proposed rulemaking pertaining to the risk-based capital regulation, both of which respond to comments received on the Advance Notice of Proposed Rulemaking. The first Notice of Proposed Rulemaking describes the methodology and rationale OFHEO used to identify the proposed benchmark loss experience, which is used to determine Enterprise credit losses during the stress test, and proposes the use of OFHEO's House Price Index in the stress test. The second Notice of Proposed Rulemaking specifies the interest rate risk and other components of the stress test, as well as the overall structure of the test.