[Federal Register Volume 67, Number 177 (Thursday, September 12, 2002)]
[Proposed Rules]
[Pages 57760-57767]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-23078]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
12 CFR Part 1750
RIN 2550-AA26
Office of Federal Housing Enterprise Oversight; Risk-Based
Capital
AGENCY: Office of Federal Housing Enterprise Oversight, HUD.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of Federal Housing Enterprise Oversight (OFHEO) is
proposing to make technical and correcting amendments to Appendix A to
Subpart B of 12 CFR Part 1750 Risk-Based Capital. The proposed
amendments are intended to enhance the accuracy of the calculation of
the risk-based capital requirement for the Enterprises.
DATES: Comments regarding this Notice of Proposed Rulemaking must be
received in writing on or before September 23, 2002.
FOR FURTHER INFORMATION CONTACT: Robert Pomeranz, Senior Accounting
Specialist, Office of Risk Analysis and Model Development, telephone
(202) 414-3796 or Jamie Schwing, Associate General Counsel, telephone
(202) 414-3787 (not toll free numbers), Office of Federal Housing
Enterprise Oversight, Fourth Floor, 1700 G Street, NW., Washington, DC
20552. The telephone number for the Telecommunications Device for the
Deaf is (800) 877-8339.
SUPPLEMENTARY INFORMATION:
Background
OFHEO published a final regulation setting forth a risk-based
capital stress test on September 13, 2001, 12 CFR part 1750 (the Rule),
which formed the basis for determining the risk-based capital
requirement for the federally sponsored housing enterprises-Federal
National Mortgage Association (Fannie Mae) and Federal Home Loan
Mortgage Corporation (Freddie Mac) (collectively, the Enterprises).\1\
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\1\ Risk-based Capital, 66 FR 47730 (September 13, 2001), 12 CFR
part 1750, as amended, 67 FR 11850 (March 15, 2002), 67 FR 19321
(April 19, 2002).
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This document proposes to make minor technical corrections to the
Rule and to update the treatment of Financial Accounting Standard 133
(FAS 133) \2\ in the Rule. These changes relate to:
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\2\ Financial Account Standards Board Statement of Financial
Accounting Standard 133, ``Accounting for Derivative Instruments and
Hedging Activities,'' June 1998.
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(1) Capital classification, which would be updated to cross
reference to the Prompt Supervisory Response and Corrective Action
regulation, 12 CFR part 1777;
(2) Out-of-date third party sources of information related to
interest rate indexes (e.g. 30-year CMT, Bloomberg Tickers), which
would be updated to reflect currently available indexes. Specifically,
the 30-year constant maturity yield is no longer reported by the
Federal Reserve in the H.15 Release. In its place, the U.S. Treasury
Department has developed a methodology using its ``Long-Term Average
Rate'' and ``Extrapolation Factors'' designed to generate a substitute
for the 30-year CMT yield series discontinued in February 2002.
Similarly, the Bloomberg tickers for the Federal Agency Cost of Funds
would be updated. Table 3-18 would be amended to reflect these changes;
(3) Credit Ratings in Table 3-30, which would be updated to include
certain credit ratings used in the marketplace that were not listed in
the original table. Specifically, Moody assigns an additional rating
from VMIG1 through VMIG3 to quantify the risks of the demand feature,
and Standard & Poor's rates short term issuances as SP-1+, SP-1, SP-2,
and SP-3;
(4) Paragraph 3.6.3.4.3.1[a]3.a on single family default and
prepayment explanatory variables, which would be replaced in full,
including equations, to correct the parenthetical (q= -7, -
6,...0,1,...40);
(5) Table 3-35, in which the explanatory variable categories for
Relative Spread (RSq) in the explanatory variable column
were identified incorrectly;
(6) The equation related to mortgage credit enhancement procedures
at paragraph 3.6.3.6.4.3, which would be corrected to reflect the fact
that in extreme circumstances (i.e., when defaults are zero), an
equation in section 3.6.3.6.4.3 Morgtgage Credit Enhancement Procedures
produces ``divide by zero'' errors in the computer code;
(7) Table 3-56 and 3-57, with respect to the definition for
``unamortized balance'' for the RBC input for single class MBS cash
flows;
(8) Table 3-59, which incorrectly reported values for the weighted
average Original LTV, rather than the weighted average Amortized
Original LTV (AOLTV) of the combined Enterprise portfolios by Original
LTV category, as of 2Q2000. Also, the specific amounts would be removed
from column 2 and column 3 of the table, because OFHEO plans to update
this table annually. A footnote to the table notes that this
information will be updated according
[[Page 57761]]
to OFHEO guideline 404 and will be available on the OFHEO
website;\3\
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\3\ The OFHEO guidelines referred to in this technical amendment
are published on OFHEO's web site at: http://www.OFHEO.gov. Some
guidelines may be pending review at the time of publication, but
will be made publicly available in the near future.
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(9) The equation in 3.7.3.1.g.2 for calculating haircuts for
mortgage backed securities, which mistakenly specified an addition sign
(+) rather than a multiplication sign (x) in the Federal Register
version of the document;
(10) Table 3-68, which would be revised to reflect that the Table
relates to long caps and floors;
(11) The calculation of common stock dividends to reflect the
effects of FAS 133 adjustments on after tax income; and
(12) The calculation of the risk-based capital requirement to
account for the effects of FAS 133 on Total Capital.
All of the proposed amendments address provisions of the Rule that
are out-of-date, incorrect, or contain typographical errors. Most of
the amendments do not materially impact the risk-based capital
requirement for either Enterprise and would improve the accuracy of the
calculation of the risk-based capital requirement for each Enterprise.
The change to the calculation of the risk-based capital requirement
to account for the effect of FAS 133 on Total Capital will impact the
risk-based capital requirement in any particular quarter, but will not
consistently raise or consistently lower capital requirements for the
Enterprises. If the change had been applied in the first quarter of
2002, Freddie Mac's risk-based capital requirement would have increased
by approximately $1.652 billion (an amount that would have left Freddie
Mac with a $14.028 billion surplus) and Fannie Mae's requirement would
have increased by about $121 million (an amount that would have left
Fannie Mae with a $5.941 billion surplus) if the adjustments had been
made at that time. Depending upon the market value of an Enterprise's
derivative portfolio, however, the proposed change could decrease,
rather than increase an Enterprise's capital in a particular quarter.
The initial Rule included an adjustment that anticipated FAS 133,
but at that time, the full impact of FAS 133 on the Enterprises'
capital requirements was not clear. With the benefit of subsequent
analysis, OFHEO now proposes to add precision to the FAS 133
adjustment, as explained below.
The stress test mandated by Congress determines for specific
economic scenarios, the impact on Enterprise capital over time of the
income and expenses associated with all on- and off-balance sheet
positions. The stress test scenarios involve changing interest rates.
FAS 133 requires that many previously off-balance sheet derivative
positions be reflected on the balance sheet at their fair values. These
fair values reflect the present values of gains or losses that are
expected, given current interest rates, to be realized over time.
In the Rule, OFHEO indicated that, to the extent that Generally
Accepted Accounting Principles (GAAP) was applicable, the risk-based
capital requirement calculation should adhere to GAAP. The Rule,
however, also recognized that, in certain situations, a rigid
conformity to GAAP would not be possible given the stylized nature of
the stress test. OFHEO, therefore, determined that with respect to FAS
133, it would be ``impracticable and unreasonably speculative to make
mark-to-market adjustments over the ten-year stress test.'' \4\
Consistent with that determination, OFHEO stated that the stress test
would not reflect derivatives at their fair market values during the
stress test as required by FAS 133. Instead, these assets are adjusted
to an amortized cost basis at the start of the stress test.\5\
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\4\ 66 FR 47786.
\5\ 66 FR 47786.
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The stress test, therefore, reflects the effectiveness of hedges by
considering their cash flows over ten years, without marking positions
to market monthly over the ten years of the stress period. Thus, before
applying the stress test, OFHEO backs out the effects of FAS 133 from
Enterprise balance sheets, reflecting assets, liabilities and off-
balance sheet items at amortized cost.
Per Section 3.10.3.6.2[a] 1.b of the Rule, the carrying value of
derivative instruments and related hedged items that are designated
Fair Value Hedges are reversed, increasing or decreasing retained
earnings. The capital value arrived at after these adjustments
(starting capital) is available at the beginning of, and is depleted
during, the stress test (per Section 3.12.2). This starting capital
value differs from ``Total Capital'' as defined in section 1750.11(n)
of the regulation (and in the 1992 Act, 12 U.S.C. 4502 (18)) and, as
publicly disclosed by the Enterprises. Unlike the starting capital,
Total Capital does not include the starting position adjustments
reversing the effects of FAS 133. The adjustments affect the amount of
retained earnings throughout the stress test, a critical element in
computing the risk-based capital requirement. Because the 1992 Act
requires that the risk-based capital surplus or deficit must be based
on Total Capital (12 U.S.C. 4611), it is appropriate to adjust the
amount of capital depleted during the stress test to add back in the
effects of FAS 133. For this reason, the proposed amendment adds FAS
133 starting-position adjustments that affect retained earnings (which
may be positive or negative amounts) to the amount of capital consumed
during the stress test. Implementation of the recommended treatment
will result in a risk-based capital requirement calculated on a basis
more consistent with the calculation of Total Capital.
This proposal is not expected to generate significant commentary,
as all of the proposed amendments are technical in nature and address
provisions of the Rule that are out-of-date, incorrect or contain
typographical errors. Accordingly, OFHEO has determined that the ten-
day comment period provides sufficient opportunity for public response.
Regulatory Impact
Executive Order 12866, Regulatory Planning and Review
This document contains proposed amendments to the Rule, which was
designated a major rule by the Office of Management and Budget (OMB).
The proposed amendments provide that Enterprise risk-based capital
requirements would be more consistent with both statutory requirements
and Enterprise disclosures. OFHEO has determined that the amendments to
the Rule are not economically significant for purposes of Executive
Order 12866. OFHEO has not found evidence that the amendments would
require the Enterprises to expend more than $100 million nor that they
would have a cumulative impact of that amount on the economy. The
impact of the amendment is to align risk with capital more accurately,
but the amendments do not consistently raise or lower capital
requirements for the Enterprises. Further, the adjustments proposed
herein are of a technical nature that address accounting and reporting
concerns and do not involve novel policy issues. Therefore, this
amendment is not a ``significant rule'' under Executive Order 12866.
Paperwork Reduction Act
These proposed amendments do not contain any information collection
[[Page 57762]]
requirements that require the approval of the Office of Management and
Budget under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et. seq.) requires
that a regulation that has a significant economic impact on a
substantial number of small entities, small businesses, or small
organizations must include an initial regulatory flexibility analysis
describing the regulation's impact on small entities. Such an analysis
need not be undertaken if the agency has certified that the regulation
will not have a significant economic impact on a substantial number of
small entities. 5 U.S.C. 605(b). OFHEO has considered the impact of the
regulation under the Regulatory Flexibility Act. The General Counsel of
OFHEO certifies that the proposed regulation is not likely to have a
significant economic impact on a substantial number of small business
entities because the regulation is applicable only to the Enterprises,
which are not small entities for purposes of the Regulatory Flexibility
Act.
List of Subjects in 12 CFR Part 1750
Capital classification, Mortgages, Risk-based capital.
Accordingly, for the reasons stated in the preamble, OFHEO proposes
to amend 12 CFR part 1750 as follows:
PART 1750--CAPITAL
1. The authority citation for part 1750 continues to read as
follows:
Authority: 12 U.S.C. 4513, 4514, 4611, 4612, 4614, 4615, 4618.
2. Amend appendix A to subpart B of part 1750 as follows:
a. Revise Table 3-3 in paragraph 3.1.2.1 [c];
b. Revise Table 3-18 in paragraph 3.1.3.1 [c];
c. Revise paragraph 3.3.1 [b];
d. Revise Table 3-30 in paragraph 3.5.3 [a] 2.a.;
e. Revise paragraph 3.6.3.4.3.1 [a] 3.a.;
f. Revise Table 3-35 in paragraph 3.6.3.4.3.2 [a] 1.;
g. In paragraph 3.6.3.6.3.3 [a] 1., remove the term
``GLm'' both places it appears and replace it with
``GLSm''.
h. In paragraph 3.6.3.6.4.3 [a] 5., after the words ``Defaulted
UPB:'' and before the equation, by adding the following equation:
[GRAPHIC] [TIFF OMITTED] TP12SE02.001
i. In paragraph 3.7.2.1.1., Table 3-56, in the row entitled
``Unamortized Balance'', remove the three sentences in the Description
column and replace them with the following four sentences: ``The sum of
all unamortized discounts, premiums, fees, commissions, etc. If
proceeds from debt or amount paid for an asset total greater than par,
report the premium as a positive number. If proceeds from debt or
amount paid for an asset total less than par, report the discount as a
negative number. Report all fees as a negative number.''
j. In paragraph 3.7.2.1.2 [a], Table 3-57, in the row entitled
``Unamortized Balance'', remove the three sentences in the Description
column and replace them with the following four sentences: ``The sum of
all unamortized discounts, premiums, fees, commissions, etc.
If proceeds from debt or amount paid for an asset total greater
than par, report the premium as a positive number. If proceeds from
debt or amount paid for an asset total less than par, report the
discount as a negative number. Report all fees as a negative number.''
k. Revise Table 3-59 in paragraph 3.7.2.3;
l. Revise paragraph 3.7.3.1 [g] 2.;
m. Revise Table 3-68 in paragraph 3.8.3.6.1 [e] 2.;
n. Revise paragraph 3.10.3.2 [a] 2.;
o. In paragraph 3.11.2 [a], remove the cross reference
``1750.2(c)'' and replace it with the cross reference ``1750.12(c)'';
p. Revise paragraph 3.11.3 [c];
q. In paragraph 3.12.2 [a], add the words ``outputs and selected
inputs from'' after the words ``Alternative Modeling Treatments, and'';
and
r. Add new paragraph 3.12.3 [a] 9. after paragraph 3.12.3 [a] 8.
The revisions and additions read as follows:
Appendix A to Subpart B of Part 1750--Risk-Based Capital Test
Methodology and Specifications
* * * * *
3.1.2.1. * * *
[c] * * *
Table 3-3.--Additional Single Family Loan Classification Variables
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Variable Description Range
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Single Family Product Code................... Identifies the mortgage product Fixed Rate 30YR.
types for single family loans. Fixed Rate 20YR.
Fixed Rate 15YR.
5 Year Fixed Rate Balloon.
7 Year Fixed Rate Balloon.
10 Year Fixed Rate Balloon.
15 Year Fixed Rate Balloon.
Adjustable Rate.
Step Rate ARMs.
Second Lien.
Other.
Census Division.............................. The Census Division in which the East North Central.
property resides. This variable East South Central.
is populated based on the Middle Atlantic.
property's state code. Mountain.
New England.
Pacific.
South Atlantic.
West North Central.
West South Central.
Relative Loan Size........................... Assigned classes for the loan 0<=Size<=0.4.
amount at origination divided 0.41.5.
appropriate quarter is provided
by OFHEO in accordance with
OFHEO guideline 403,
based upon data from both
Enterprises. It is expressed as
a decimal.
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[[Page 57763]]
* * * * *
3.1.3.1 * * *
[c] * * *
Table 3-18.--Interest Rate and Index Inputs
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Interest Rate Index Description Source
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1 MO Treasury Bill One-month Treasury bill yield, Bloomberg Generic 1 Month U.S.
monthly simple average of daily Treasury bill
rate, quoted as actual/360 Ticker: GB1M (index)
-------------------------------------
3 MO CMT Three-month constant maturity Federal Reserve H.15 Release
Treasury yield, monthly simple
average of daily rate, quoted as
bond equivalent yield
-------------------------------------
6 MO CMT Six-month constant maturity Treasury Federal Reserve H.15 Release
yield, monthly simple average of
daily rate, quoted as bond
equivalent yield
-------------------------------------
1 YR CMT One-year constant maturity Treasury Federal Reserve H.15 Release
yield, monthly simple average of
daily rate, quoted as bond
equivalent yield
-------------------------------------
2 YR CMT Two-year constant maturity Treasury Federal Reserve H.15 Release
yield, monthly simple average of
daily rate, quoted as bond
equivalent yield
-------------------------------------
3 YR CMT Three-year constant maturity Federal Reserve H.15 Release
Treasury yield, monthly simple
average of daily rate, quoted as
bond equivalent yield
-------------------------------------
5 YR CMT Five-year constant maturity Treasury Federal Reserve H.15 Release
yield, monthly simple average of
daily rate, quoted as bond
equivalent yield
-------------------------------------
10 YR CMT Ten-year constant maturity Treasury Federal Reserve H.15 Release
yield, monthly simple average of
daily rate, quoted as bond
equivalent yield
-------------------------------------
20 YR CMT Twenty-year constant maturity Federal Reserve H.15 Release
Treasury yield, monthly simple
average of daily rate, quoted as
bond equivalent yield
-------------------------------------
30 YR CMT Thirty-year constant maturity Federal Reserve H.15 Release factors
Treasury yield, monthly simple used for estimation, U.S. Dept. of
average of daily rate, quoted as Treasury
bond equivalent yield after
February 15, 2002, estimated
according to OFHEO guideline 402
-------------------------------------
Overnight Fed Funds (Effective) Overnight effective Federal Funds Federal Reserve H.15 Release
rate, monthly simple average of
daily rate
-------------------------------------
1 Week Federal Funds 1 week Federal Funds rate, monthly Bloomberg Term Fed Funds U.S.
simple average of daily rates Domestic Ticker: GFED01W(index)
-------------------------------------
6 Month Fed Funds 6 month Federal Funds rate, monthly Bloomberg Term Fed Funds U.S.
simple average of daily rates Domestic Ticker: GFED06M(index)
-------------------------------------
Conventional Mortgage Rate FHLMC (Freddie Mac) contract Federal Reserve H.15 Release
interest rates for 30 YR fixed-rate
mortgage commitments, monthly
average of weekly rates
-------------------------------------
FHLB 11th District COF 11th District (San Francisco) Bloomberg Cost of Funds for the 11th
weighted average cost of funds for District Ticker: COF11 (index)
savings and loans, monthly
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1 MO LIBOR One-month London Interbank Offered British Bankers Association
Rate, average of bid and asked, Bloomberg Ticker: US0001M (index)
monthly simple average of daily
rates, quoted as actual/360
-------------------------------------
3 MO LIBOR Three-month London Interbank Offered British Bankers Association
Rate, average of bid and asked, Bloomberg Ticker: US0003M (index)
monthly simple average of daily
rates, quoted as actual/360
-------------------------------------
6 MO LIBOR Six-month London Interbank Offered British Bankers Association
Rate, average of bid and asked, Bloomberg Ticker: US0006M (index)
monthly simple average of daily
rates, quoted as actual/360
-------------------------------------
12 MO LIBOR One-year London Interbank Offered British Bankers Association
Rate, average of bid and asked, Bloomberg Ticker: US0012M (index)
monthly simple average of daily
rates, quoted as actual/360
-------------------------------------
Prime Rate Prevailing rate as quoted, monthly Federal Reserve H.15 Release
average of daily rates
-------------------------------------
1 MO Federal Agency COF One-month Federal Agency Cost of Bloomberg Generic 1 Month Agency
Funds, monthly simple average of Discount Note Yield Ticker:
daily rates, quoted as actual/360 AGDN030Y (index)
-------------------------------------
3 MO Federal Agency COF Three-month Federal Agency Cost of Bloomberg Generic 3 Month Agency
Funds, monthly simple average of Discount Note Yield Ticker:
daily rates, quoted as actual/360 AGDN090Y (index)
-------------------------------------
6 MO Federal Agency COF Six-month Federal Agency Cost of Bloomberg Generic 6 Month Agency
Funds, monthly simple average of Discount Note Yield Ticker:
daily rates, quoted as actual/360 AGDN180Y (index)
-------------------------------------
1 YR Federal Agency COF One-year Federal Agency Cost of Bloomberg Generic 12 Month Agency
Funds, monthly simple average of Discount Note Yield Ticker:
daily rates, quoted as actual/360 AGDN360Y (index)
-------------------------------------
2 YR Federal Agency COF Two-year Federal Agency Fair Market Bloomberg Generic 2 Year Agency Fair
Yield, monthly simple average of Market Yield Ticker: CO842Y Index
daily rates
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[[Page 57764]]
3 YR Federal Agency COF Three-year Federal Agency Fair Bloomberg Generic 3 Year Agency Fair
Market Yield, monthly simple Market Yield Ticker: CO843Y Index
average of daily rates
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5 YR Federal Agency COF Five-year Federal Agency Fair Market Bloomberg Generic 5 Year Agency Fair
Yield, monthly simple average of Market Yield Ticker: CO845Y Index
daily rates
-------------------------------------
10 YR Federal Agency COF Ten-year Federal Agency Fair Market Bloomberg Generic 10 Year Agency
Yield, monthly simple average of Fair Market Yield Ticker: CO8410Y
daily rates Index
-------------------------------------
30 YR Federal Agency COF Thirty-year Federal Agency Fair Bloomberg Generic 30 Year Agency
Market Yield, monthly simple Fair Market Yield Ticker: CO8430Y
average of daily rates Index
-------------------------------------
15 YR fixed-rate mortgage FHLMC (Freddie Mac) contract Bloomberg FHLMC 15 YR, 10 day
interest rates for 15 YR fixed-rate commitment rate Ticker: FHCR1510
mortgage commitments, monthly (index)
average of FHLMC (Freddie Mac)
contract interest rates for 15 YR
-------------------------------------
7-year balloon mortgage rate Seven-year balloon mortgage, equal Computed
to the Conventional Mortgage Rate
less 50 basis points
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* * * * *
3.3.1 * * *
[b] The process for determining interest rates is as follows:
first, identify the values for the necessary Interest Rates at time
zero; second, project the ten-year CMT for each month of the Stress
Period as specified in the 1992 Act; third, project the 1-month
Treasury yield, the 3-month, 6-month, 1-, 2-, 3-, 5-, and 20-year
CMTs; fourth, estimate the 30-year CMT; fifth, project non-treasury
Interest Rates, including the Federal Agency Cost of Funds Index;
and sixth, project the Enterprises Cost of Funds Index, which
provides borrowing rates for the Enterprises during the Stress
Period, by increasing the Agency Cost of Funds Index by 10 basis
points for the last 108 months of the Stress Test. Guidance in
determining interest rates is available under OFHEO Guideline No.
402, ``Risk Based Capital Process for Capturing and Utilizing
Interest Rates Files,'' which is available on OFHEO's web site,
http://www.OFHEO.Gov.
* * * * *
3.5.3 * * *
[a] * * *
2. * * *
a. * * *
Table 3-30.--Rating Agencies Mappings to OFHEO Ratings Categories
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OFHEO ratings category AAA AA A BBB Below BBB and unrated
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Standard & Poor's Long-Term AAA AA A BBB Below BBB and Unrated
Fitch Long-Term AAA AA A BBB Below BBB and Unrated
Moody's Long-Term Aaa Aa A Baa Below Baa and Unrated
Standard & Poor's Short-Term A-1+ A-1 A-2 A-3 SP-3, B or Below and Unrated
SP-1+ SP-1 SP-2
Fitch Short-Term F-1+ F-1 F-2 F-3 B and Below and Unrated
Moody's Short-Term \1\ Prime-1 Prime-1 Prime-2 Prime-3 Not Prime, SG and Unrated
MIG1 MIG1 MIG2 MIG3
VMIG1 VMIG1 VMIG2 VMIG3
Fitch Bank Individual Ratings A B C D E
A/B B/C C/D D/E
Moody's Bank Financial Strength A B C D E
Rating
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Any short-term rating that appears in more than one OFHEO category column is assigned the lower OFHEO rating category.
* * * * *
3.6.3.4.3.1 * * *
[a] * * *
3. * * *
a. Compare mortgage rates for each quarter of the Stress Test
and for the eight quarters prior to the start of the stress test (q
= -7, -6,...0, 1,...40):
[GRAPHIC] [TIFF OMITTED] TP12SE02.002
Note: For this purpose, MCONm is required for the 24
months (eight quarters) prior to the start of the Stress Test. Also,
MIRm = MIR0 for m < 0.
* * * * *
3.6.3.4.3.2. * * *
[a] * * *
1. * * *
Table 3-35.--Coefficients for Single Family Default and Prepayment Explanatory Variable
--------------------------------------------------------------------------------------------------------------------------------------------------------
30-Year Fixed-Rate Loans Adjustable-Rate Loans Other Fixed-Rate Loans
--------------------------- (ARMs) --------------------------
---------------------------
Explanatory Variable (V) Default Prepayment Default Prepayment Default Prepayment
Weight Weight Weight Weight Weight Weight
([beta]v) (v) ([beta]v) (v) ([beta]v) (v)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Aq
0<=Aq<=4............................................................... -0.6276 -0.6122 -0.7046 -0.5033 -0.7721 -0.6400
------------------------------------------------------------------------
5<=Aq<=8............................................................... -0.1676 0.1972 -0.2259 0.1798 -0.2738 0.1721
------------------------------------------------------------------------
9<=Aq<=12.............................................................. -0.05872 0.2668 0.01504 0.2744 -0.09809 0.2317
------------------------------------------------------------------------
13<=Aq<=16............................................................. 0.07447 0.2151 0.2253 0.2473 0.1311 0.1884
------------------------------------------------------------------------
[[Page 57765]]
17<=Aq<=20............................................................. 0.2395 0.1723 0.3522 0.1421 0.3229 0.1900
------------------------------------------------------------------------
21<=Aq<=24............................................................. 0.2773 0.2340 0.4369 0.1276 0.3203 0.2356
------------------------------------------------------------------------
25<=Aq<=36............................................................. 0.2740 0.1646 0.2954 0.1098 0.3005 0.1493
------------------------------------------------------------------------
37<=Aq<=48............................................................. 0.1908 -0.2318 0.06902 -0.1462 0.2306 -0.2357
------------------------------------------------------------------------
49<=Aq................................................................. -0.2022 -0.4059 -0.4634 -0.4314 -0.1614 -0.2914
------------------------------------------------------------------------
LTVORIG
LTVORIG<=60............................................................ -1.150 0.04787 -1.303 0.08871 -1.280 0.02309
------------------------------------------------------------------------
60ORIG<=70......................................................... -0.1035 -0.03131 -0.1275 -0.005619 -0.06929 -0.02668
------------------------------------------------------------------------
70ORIG<=75......................................................... 0.5969 -0.09885 0.4853 -0.09852 0.6013 -0.05446
------------------------------------------------------------------------
75ORIG<=80......................................................... 0.2237 -0.04071 0.1343 -0.03099 0.2375 -0.03835
------------------------------------------------------------------------
80ORIG<=90......................................................... 0.2000 -0.004698 0.2576 0.004226 0.2421 -0.01433
------------------------------------------------------------------------
90ORIG............................................................. 0.2329 0.1277 0.5528 0.04220 0.2680 0.1107
------------------------------------------------------------------------
PNEQq
0q<=0.05.......................................................... -1.603 0.5910 -1.1961 0.4607 -1.620 0.5483
------------------------------------------------------------------------
0.05q<=0.1........................................................ -0.5241 0.3696 -0.3816 0.2325 -0.5055 0.3515
------------------------------------------------------------------------
0.1q<=0.15........................................................ -0.1805 0.2286 -0.1431 0.1276 -0.1249 0.2178
------------------------------------------------------------------------
0.15q<=0.2........................................................ 0.07961 -0.02000 -0.04819 0.03003 0.07964 -0.02137
------------------------------------------------------------------------
0.2q<=0.25........................................................ 0.2553 -0.1658 0.2320 -0.1037 0.2851 -0.1540
------------------------------------------------------------------------
0.25q<=0.3........................................................ 0.5154 -0.2459 0.2630 -0.1829 0.4953 -0.2723
------------------------------------------------------------------------
0.3q<=0.35........................................................ 0.6518 -0.2938 0.5372 -0.2075 0.5979 -0.2714
------------------------------------------------------------------------
0.35q............................................................. 0.8058 -0.4636 0.7368 -0.3567 0.7923 -0.3986
------------------------------------------------------------------------
Bq 1.303 -0.3331 0.8835 -0.2083 1.253 -0.3244
------------------------------------------------------------------------
RLS
0ORIG<=0.4......................................................... ........... -0.5130 ........... -0.4765 ........... -0.4344
------------------------------------------------------------------------
0.4ORIG<=0.6....................................................... ........... -0.3264 ........... -0.2970 ........... -0.2852
------------------------------------------------------------------------
0.6ORIG<=0.75...................................................... ........... -0.1378 ........... -0.1216 ........... -0.1348
------------------------------------------------------------------------
0.75ORIG<=1.0...................................................... ........... 0.03495 ........... 0.04045 ........... 0.01686
------------------------------------------------------------------------
1.0ORIG<=1.25...................................................... ........... 0.1888 ........... 0.1742 ........... 0.1597
------------------------------------------------------------------------
1.25ORIG<=1.5...................................................... ........... 0.3136 ........... 0.2755 ........... 0.2733
------------------------------------------------------------------------
1.5ORIG............................................................ ........... 0.4399 ........... 0.4049 ENTq
RSq<=-0.20............................................................. ........... -1.368 ........... -0.5463 ........... -1.195
------------------------------------------------------------------------
-0.20 q<=-0.10...................................................... ........... -1.023 ........... -0.4560 ........... -0.9741
------------------------------------------------------------------------
-0.10 q<=0.......................................................... ........... -0.8078 ........... -0.4566 ........... -0.7679
------------------------------------------------------------------------
0q<=0.10............................................................ ........... -0.3296 ........... -0.3024 ........... -0.2783
------------------------------------------------------------------------
0.10 q<=0.20........................................................ ........... 0.8045 ........... 0.3631 ........... 0.7270
------------------------------------------------------------------------
0.20 q<=0.30........................................................ ........... 1.346 ........... 0.7158 ........... 1.229
------------------------------------------------------------------------
0.30 q.............................................................. ........... 1.377 ........... 0.6824 ........... 1.259
------------------------------------------------------------------------
PSq
PSq<=-0.20............................................................. ........... ............ 0.08490 0.6613 ........... ............
------------------------------------------------------------------------
-0.20 q<=-0.10...................................................... ........... ............ 0.3736 0.4370 ........... ............
------------------------------------------------------------------------
[[Page 57766]]
-0.10 q<=0.......................................................... ........... ............ 0.2816 0.2476 ........... ............
------------------------------------------------------------------------
0q<=0.10............................................................ ........... ............ 0.1381 0.1073 ........... ............
------------------------------------------------------------------------
0.10 q<=0.20........................................................ ........... ............ -0.1433 -0.3516 ........... ............
------------------------------------------------------------------------
0.20 q<=0.30........................................................ ........... ............ -0.2869 -0.5649 ........... ............
------------------------------------------------------------------------
0.30 q.............................................................. ........... ............ -0.4481 -0.5366 ........... ............
------------------------------------------------------------------------
YCSq
YCSq <1.0.............................................................. ........... -0.2582 ........... -0.2947 ........... -0.2917
------------------------------------------------------------------------
1.0<=YCSq <1.2......................................................... ........... -0.02735 ........... -0.1996 ........... -0.01395
------------------------------------------------------------------------
1.2<=YCSq <1.5......................................................... ........... -0.04099 ........... 0.03356 ........... -0.03796
------------------------------------------------------------------------
1.5<=YCSq.............................................................. ........... 0.3265 ........... 0.4608 ........... 0.3436
------------------------------------------------------------------------
IREFq ........... ............ 0.1084 -0.01382 ........... ............
------------------------------------------------------------------------
PROD
ARMs................................................................... ........... ............ 0.8151 0.2453 ........... ............
------------------------------------------------------------------------
Balloon Loans.......................................................... ........... ............ ........... ............ 1.253 0.9483
------------------------------------------------------------------------
15-Year FRMs........................................................... ........... ............ ........... ............ -1.104 0.07990
------------------------------------------------------------------------
20-Year FRMs........................................................... ........... ............ ........... ............ -0.5834 0.06780
------------------------------------------------------------------------
Government Loans....................................................... ........... ............ ........... ............ 0.9125 -0.5660
------------------------------------------------------------------------
BCalLTV
LTVORIG<=60............................................................ 2.045 -- 2.045 -- 2.045 --
------------------------------------------------------------------------
60ORIG<=70......................................................... 0.3051 -- 0.3051 -- 0.3051 --
------------------------------------------------------------------------
70ORIG<=75......................................................... -0.07900 -- -0.07900 -- -0.07900 --
------------------------------------------------------------------------
75ORIG<=80......................................................... -0.05519 -- -0.05519 -- -0.05519 --
------------------------------------------------------------------------
80ORIG<=90......................................................... -0.1838 -- -0.1838 -- -0.1838 --
------------------------------------------------------------------------
90ORIG............................................................. 0.2913 -- 0.2913 -- 0.2913 ............
------------------------------------------------------------------------
Intercept ([beta]0, [gamma]0) -6.516 -4.033 -6.602 -3.965 -6.513 -3.949
--------------------------------------------------------------------------------------------------------------------------------------------------------
* * * * *
3.7.2.3 * * *
Table 3-59.--Aggregate Enterprise Amortized Original LTV (AOLTV0)
Distribution \1\
------------------------------------------------------------------------
Wt avg
Original LTV UPB AOLTV for
distribution range
------------------------------------------------------------------------
00404. The contents of the table appear at
www.OFHEO.gov.
Note: Amortized Original LTV (also known as the ``current-loan-to-
original-value'' ratio) is the Original LTV adjusted for the change in
UPB but not for changes in property value.
* * * * *
3.7.3.1 * * *
[g] * * *
2. Compute:
[GRAPHIC] [TIFF OMITTED] TP12SE02.003
* * * * *
3.8.3.6.1 * * *
[e] * * *
Table 3-68.--Calculation of Monthly Cash Flows for Long Caps and Floors
------------------------------------------------------------------------
Instrument Cash flows
------------------------------------------------------------------------
Cap (I-K) x N x D if I K; 0
if I <= K
Floor (K-I) x N x D if I < K; O if I = K
------------------------------------------------------------------------
* * * * *
3.10.3.2. * * *
[a] * * *
2. Common Stock. In the first year of the Stress Test, dividends
are paid on common stock in each of the four quarters after
preferred dividends, if any, are paid unless the Enterprise's
capital is, or after the payment, would be, below the estimated
minimum capital requirement.
[[Page 57767]]
a. First Quarter. In the first quarter, the dividend is the
dividend per share ratio for common stock from the quarter preceding
the Stress Test times the current number of shares of common stock
outstanding.
b. Subsequent Quarters.
(1) In the three subsequent quarters, if the preceding quarter's
after tax income is greater than after tax income in the quarter
preceding the Stress Test (adjusted by the ratio of Enterprise
retained earnings and retained earnings after adjustments are made
that revert investment securities and derivatives to amortized
cost), pay the larger of (1) the dividend per share ratio for common
stock from the quarter preceding the Stress Test times the current
number of shares of common stock outstanding or (2) the average
dividend payout ratio for common stock for the four quarters
preceding the start of the Stress Test times the preceding quarter's
after tax income (adjusted by the reciprocal of the ratio of
Enterprise retained earnings and retained earnings after adjustments
are made that revert investment securities and derivatives to
amortized cost) less preferred dividends paid in the current
quarter. In no case may the dividend payment exceed an amount equal
to core capital less the estimated minimum capital requirement at
the end of the preceding quarter.
(2) If the previous quarter's after tax income is less than or
equal to after tax income in the quarter preceding the Stress Test
(adjusted by the ratio of Enterprise retained earnings and retained
earnings after adjustments are made that revert investment
securities and derivatives to amortized cost), pay the lesser of (1)
the dividend per share ratio for common stock for the quarter
preceding the Stress Test times the current number of shares of
common stock outstanding or (2) an amount equal to core capital less
the estimated minimum capital requirement at the end of the
preceding quarter, but not less than zero.
* * * * *
3.11.3 * * *
[c] OFHEO will provide the Enterprise with its estimate of the
capital treatment as soon as possible after receiving notice of the
New Activity. In any event, the Enterprise will be notified of the
capital treatment in accordance with the notice of proposed capital
classification provided for in Sec. 1777.21 of this chapter.
* * * * *
3.12.3 * * *
[a] * * *
9. Subtract the net increase (or add the net decrease) in
Retained Earnings related to Fair Value Hedges at the start of the
stress test made in accordance with section 3.10.3.6.2 [a] 1. b. of
this appendix.
* * * * *
Dated: September 6, 2002.
Armando Falcon, Jr.,
Director, Office of Federal Housing Enterprise Oversight.
[FR Doc. 02-23078 Filed 9-11-02; 8:45 am]
BILLING CODE 4220-01-P