The Federal Housing Finance Agency (FHFA) has announced a proposed rule to codify the terms of conservatorship and receivership operations for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. A copy of the rule has been submitted to the Federal Register.

Pursuant to the Housing and Economic Recovery Act of 2008, the proposed rule mirrors many of the requirements in the Federal Deposit Insurance Corp. (FDIC) regulations for conservatorships and receiverships.

The new regulation addresses  the status and priority of claims, the relationships among various classes of creditors and equity-holders, and the priorities for contract parties and other claimants under conservatorships or receiverships.

The rule would certify that all claims arising from an equity interest in a regulated entity in receivership would be provided the same treatment as the interests of the shareholders.

It also states that the claims by shareholders would receive the lowest priority in a receivership, behind administrative expenses of the receiver, general liabilities of the regulated entity, and liabilities subordinated to those of general creditors.

The rule would restrict the ability of a regulated entity to make capital distributions during a conservatorship and would ensure that the operations of the entity foster  liquid, efficient, competitive, and resilient national housing financial markets.

Additionally, the status of claims against the conservator or receiver for breach of contract would be clarified under the proposal.

“This regulation is designed to provide clarity to the regulated entities, creditors and the markets,” said  FHFA acting Director Edward DeMarco. “Publication of this rule for comment has no impact on the current conservatorship operations and is not a reflection of the condition of Fannie Mae, Freddie Mac, or the Federal Home Loan Banks.”

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