---
kind: "range"
citation: "12 C.F.R. §§ 1240.41–1240.46"
title: "12"
from: "1240.41"
to: "1240.46"
count: 6
url: "https://uscodex.org/cfr/12/1240.41..1240.46"
---

# §1240.41. Operational requirements for CRT and other securitization exposures.

- (a) **Operational criteria for traditional securitizations.** An Enterprise that transfers exposures it has purchased or otherwise acquired to a securitization SPE or other third party in connection with a traditional securitization may exclude the exposures from the calculation of its risk-weighted assets only if each condition in this section is satisfied. An Enterprise that meets these conditions must hold risk-based capital against any credit risk it retains in connection with the securitization. An Enterprise that fails to meet these conditions must hold risk-based capital against the transferred exposures as if they had not been securitized and must deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from the transaction. The conditions are:
  - (1) The exposures are not reported on the Enterprise's consolidated balance sheet under GAAP;
  - (2) The Enterprise has transferred to one or more third parties credit risk associated with the underlying exposures;
  - (3) Any clean-up calls relating to the securitization are eligible clean-up calls; and
  - (4) **The securitization does not—**
    - (i) Include one or more underlying exposures in which the borrower is permitted to vary the drawn amount within an agreed limit under a line of credit; and
    - (ii) **Contain an early amortization provision.**
- (b) **Operational criteria for synthetic securitizations.** For synthetic securitizations, an Enterprise may recognize for risk-based capital purposes the use of a credit risk mitigant to hedge underlying exposures only if each condition in this [paragraph (b)](#b) is satisfied. An Enterprise that meets these conditions must hold risk-based capital against any credit risk of the exposures it retains in connection with the synthetic securitization. An Enterprise that fails to meet these conditions or chooses not to recognize the credit risk mitigant for purposes of this section must instead hold risk-based capital against the underlying exposures as if they had not been synthetically securitized. The conditions are:
  - (1) **The credit risk mitigant is—**
    - (i) Financial collateral;
    - (ii) A guarantee that meets all criteria as set forth in the definition of “eligible guarantee” in [§ 1240.2](/cfr/12/1240.2.md), except for the criteria in [paragraph (3)](#b-3) of that definition; or
    - (iii) A credit derivative that meets all criteria as set forth in the definition of “eligible credit derivative” in [§ 1240.2](/cfr/12/1240.2.md), except for the criteria in [paragraph (3)](#b-3) of the definition of “eligible guarantee” in [§ 1240.2](/cfr/12/1240.2.md).
  - (2) The Enterprise transfers credit risk associated with the underlying exposures to one or more third parties, and the terms and conditions in the credit risk mitigants employed do not include provisions that:
    - (i) Allow for the termination of the credit protection due to deterioration in the credit quality of the underlying exposures;
    - (ii) Require the Enterprise to alter or replace the underlying exposures to improve the credit quality of the underlying exposures;
    - (iii) Increase the Enterprise's cost of credit protection in response to deterioration in the credit quality of the underlying exposures;
    - (iv) Increase the yield payable to parties other than the Enterprise in response to a deterioration in the credit quality of the underlying exposures; or
    - (v) Provide for increases in a retained first loss position or credit enhancement provided by the Enterprise after the inception of the securitization;
  - (3) The Enterprise obtains a well-reasoned opinion from legal counsel that confirms the enforceability of the credit risk mitigant in all relevant jurisdictions; and
  - (4) **Any clean-up calls relating to the securitization are eligible clean-up calls.**
- (c) **Operational criteria for credit risk transfers.** For credit risk transfers, an Enterprise may recognize for risk-based capital purposes, the use of a credit risk transfer only if each condition in this [paragraph (c)](#c) is satisfied (or, for a credit risk transfer entered into before February 16, 2021, only if each condition in paragraphs [(c)(2)](#c-2) and [(3)](#c-3) of this section is satisfied). An Enterprise that meets these conditions must hold risk-based capital against any credit risk of the exposures it retains in connection with the credit risk transfer. An Enterprise that fails to meet these conditions or chooses not to recognize the credit risk transfer for purposes of this section must instead hold risk-based capital against the underlying exposures as if they had not been subject to the credit risk transfer. The conditions are:
  - (1) **The credit risk transfer is any of the following—**
    - (i) An eligible funded synthetic risk transfer;
    - (ii) An eligible reinsurance risk transfer;
    - (iii) An eligible single-family lender risk share;
    - (iv) An eligible multifamily lender risk share; or
    - (v) **An eligible senior-subordinated structure.**
  - (2) The credit risk transfer has been approved by FHFA as effective in transferring the credit risk of one or more mortgage exposures to another party, taking into account any counterparty, recourse, or other risk to the Enterprise and any capital, liquidity, or other requirements applicable to counterparties;
  - (3) The Enterprise transfers credit risk associated with the underlying exposures to one or more third parties, and the terms and conditions in the credit risk transfer employed do not include provisions that:
    - (i) Allow for the termination of the credit risk transfer due to deterioration in the credit quality of the underlying exposures;
    - (ii) Require the Enterprise to alter or replace the underlying exposures to improve the credit quality of the underlying exposures;
    - (iii) Increase the Enterprise's cost of credit protection in response to deterioration in the credit quality of the underlying exposures;
    - (iv) Increase the yield payable to parties other than the Enterprise in response to a deterioration in the credit quality of the underlying exposures; or
    - (v) Provide for increases in a retained first loss position or credit enhancement provided by the Enterprise after the inception of the credit risk transfer;
  - (4) The Enterprise obtains a well-reasoned opinion from legal counsel that confirms the enforceability of the credit risk transfer in all relevant jurisdictions;
  - (5) Any clean-up calls relating to the credit risk transfer are eligible clean-up calls;
  - (6) Any time-based calls relating to the credit risk transfer are eligible time-based calls; and
  - (7) The Enterprise includes in its periodic disclosures under the Federal securities laws, or in other appropriate public disclosures, a reasonably detailed description of—
    - (i) The material recourse or other risks that might reduce the effectiveness of the credit risk transfer in transferring the credit risk on the underlying exposures to third parties; and
    - (ii) Each condition under [paragraph (a)](#a) of this section (governing traditional securitizations) or [paragraph (b)](#b) of this section (governing synthetic securitizations) that is not satisfied by the credit risk transfer and the reasons that each such condition is not satisfied.
- (d) **Due diligence requirements for securitization exposures.**
  - (1) Except for exposures that are deducted from common equity tier 1 capital and exposures subject to [§ 1240.42(h)](/cfr/12/1240.42.md?p=h), if an Enterprise is unable to demonstrate to the satisfaction of FHFA a comprehensive understanding of the features of a securitization exposure that would materially affect the performance of the exposure, the Enterprise must assign the securitization exposure a risk weight of 1,250 percent. The Enterprise's analysis must be commensurate with the complexity of the securitization exposure and the materiality of the exposure in relation to its capital.
  - (2) An Enterprise must demonstrate its comprehensive understanding of a securitization exposure under [paragraph (d)(1)](#d-1) of this section, for each securitization exposure by:
    - (i) Conducting an analysis of the risk characteristics of a securitization exposure prior to acquiring the exposure, and documenting such analysis within three business days after acquiring the exposure, considering:
      - (A) Structural features of the securitization that would materially impact the performance of the exposure, for example, the contractual cash flow waterfall, waterfall-related triggers, credit enhancements, liquidity enhancements, fair value triggers, the performance of organizations that service the exposure, and deal-specific definitions of default;
      - (B) Relevant information regarding the performance of the underlying credit exposure(s), for example, the percentage of loans 30, 60, and 90 days past due; default rates; prepayment rates; loans in foreclosure; property types; occupancy; average credit score or other measures of creditworthiness; average loan-to-value ratio; and industry and geographic diversification data on the underlying exposure(s);
      - (C) Relevant market data of the securitization, for example, bid-ask spread, most recent sales price and historic price volatility, trading volume, implied market rating, and size, depth and concentration level of the market for the securitization; and
      - (D) For resecuritization exposures, performance information on the underlying securitization exposures, for example, the issuer name and credit quality, and the characteristics and performance of the exposures underlying the securitization exposures; and
    - (ii) On an on-going basis (no less frequently than quarterly), evaluating, reviewing, and updating as appropriate the analysis required under [paragraph (d)(1)](#d-1) of this section for each securitization exposure.

# §1240.42. Risk-weighted assets for CRT and other securitization exposures.

- (a) **Securitization risk weight approaches.** Except as provided elsewhere in this section or in [§ 1240.41](/cfr/12/1240.41.md):
  - (1) An Enterprise must deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from a securitization and apply a 1,250 percent risk weight to the portion of a CEIO that does not constitute after-tax gain-on-sale.
  - (2) If a securitization exposure does not require deduction under [paragraph (a)(1)](#a-1) of this section, an Enterprise may assign a risk weight to the securitization exposure either using the simplified supervisory formula approach (SSFA) in accordance with [§ 1240.43(a) through (d)](/cfr/12/1240.43.md?p=a..d) for a securitization exposure that is not a retained CRT exposure or an acquired CRT exposure or using the credit risk transfer approach (CRTA) in accordance with [§ 1240.44](/cfr/12/1240.44.md) for a retained CRT exposure, and in either case, subject to the limitation under [paragraph (e)](#e) of this section.
  - (3) If a securitization exposure does not require deduction under [paragraph (a)(1)](#a-1) of this section and the Enterprise cannot, or chooses not to apply the SSFA or the CRTA to the exposure, the Enterprise must assign a risk weight to the exposure as described in [§ 1240.45](/cfr/12/1240.45.md).
  - (4) If a securitization exposure is a derivative contract (other than protection provided by an Enterprise in the form of a credit derivative) that has a first priority claim on the cash flows from the underlying exposures (notwithstanding amounts due under interest rate or currency derivative contracts, fees due, or other similar payments), an Enterprise may choose to set the risk-weighted asset amount of the exposure equal to the amount of the exposure as determined in [paragraph (c)](#c) of this section.
- (b) **Total risk-weighted assets for securitization exposures.** An Enterprise's total risk-weighted assets for securitization exposures equals the sum of the risk-weighted asset amount for securitization exposures that the Enterprise risk weights under [§ 1240.41(d)](/cfr/12/1240.41.md?p=d), [§ 1240.42(a)(1)](#a-1), [§ 1240.43](/cfr/12/1240.43.md), [§ 1240.44](/cfr/12/1240.44.md), or [§ 1240.45](/cfr/12/1240.45.md), and [paragraphs (e) through (h)](#e..h) of this section, as applicable.
- (c) **Exposure amount of a CRT or other securitization exposure—**
  - (1) **On-balance sheet securitization exposures.** Except as provided for retained CRT exposures in [§ 1240.44(f)](/cfr/12/1240.44.md?p=f), the exposure amount of an on-balance sheet securitization exposure (excluding a repo-style transaction, eligible margin loan, OTC derivative contract, or cleared transaction) is equal to the carrying value of the exposure.
  - (2) **Off-balance sheet securitization exposures.** Except as provided in [paragraph (h)](#h) of this section or as provided for retained CRT exposures in [§ 1240.44(f)](/cfr/12/1240.44.md?p=f), the exposure amount of an off-balance sheet securitization exposure that is not a repo-style transaction, eligible margin loan, cleared transaction (other than a credit derivative), or an OTC derivative contract (other than a credit derivative) is the notional amount of the exposure.
  - (3) **Repo-style transactions, eligible margin loans, and derivative contracts.** The exposure amount of a securitization exposure that is a repo-style transaction, eligible margin loan, or derivative contract (other than a credit derivative) is the exposure amount of the transaction as calculated under [§ 1240.36](/cfr/12/1240.36.md) or [§ 1240.39](/cfr/12/1240.39.md), as applicable.
- (d) **Overlapping exposures.** If an Enterprise has multiple securitization exposures that provide duplicative coverage to the underlying exposures of a securitization, the Enterprise is not required to hold duplicative risk-based capital against the overlapping position. Instead, the Enterprise may apply to the overlapping position the applicable risk-based capital treatment that results in the highest risk-based capital requirement.
- (e) **Implicit support.** If an Enterprise provides support to a securitization (including a CRT) in excess of the Enterprise's contractual obligation to provide credit support to the securitization (implicit support):
  - (1) The Enterprise must include in risk-weighted assets all of the underlying exposures associated with the securitization as if the exposures had not been securitized and must deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from the securitization; and
  - (2) The Enterprise must disclose publicly:
    - (i) That it has provided implicit support to the securitization; and
    - (ii) **The risk-based capital impact to the Enterprise of providing such implicit support.**
- (f) **Interest-only mortgage-backed securities.** For non-credit-enhancing interest-only mortgage-backed securities that are not subject to [§ 1240.32(c)](/cfr/12/1240.32.md?p=c), the risk weight may not be less than 100 percent.
- (g) **Nth-to-default credit derivatives—**
  - (1) **Protection provider.** An Enterprise may assign a risk weight using the SSFA in [§ 1240.43](/cfr/12/1240.43.md) to an nth-to-default credit derivative in accordance with this [paragraph (g)](#g). An Enterprise must determine its exposure in the nth-to-default credit derivative as the largest notional amount of all the underlying exposures.
  - (2) Attachment and detachment points. For purposes of determining the risk weight for an nth-to-default credit derivative using the SSFA, the Enterprise must calculate the attachment point and detachment point of its exposure as follows:
    - (i) The attachment point (parameter A) is the ratio of the sum of the notional amounts of all underlying exposures that are subordinated to the Enterprise's exposure to the total notional amount of all underlying exposures. The ratio is expressed as a decimal value between zero and one. In the case of a first-to-default credit derivative, there are no underlying exposures that are subordinated to the Enterprise's exposure. In the case of a second-or-subsequent-to-default credit derivative, the smallest (n-1) notional amounts of the underlying exposure(s) are subordinated to the Enterprise's exposure.
    - (ii) The detachment point (parameter D) equals the sum of parameter A plus the ratio of the notional amount of the Enterprise's exposure in the nth-to-default credit derivative to the total notional amount of all underlying exposures. The ratio is expressed as a decimal value between zero and one.
  - (3) **Risk weights.** An Enterprise that does not use the SSFA to determine a risk weight for its nth-to-default credit derivative must assign a risk weight of 1,250 percent to the exposure.
  - (4) **Protection purchaser—**
    - (i) **First-to-default credit derivatives.** An Enterprise that obtains credit protection on a group of underlying exposures through a first-to-default credit derivative that meets the rules of recognition of [§ 1240.38(b)](/cfr/12/1240.38.md?p=b) must determine its risk-based capital requirement for the underlying exposures as if the Enterprise synthetically securitized the underlying exposure with the smallest risk-weighted asset amount and had obtained no credit risk mitigant on the other underlying exposures. An Enterprise must calculate a risk-based capital requirement for counterparty credit risk according to [§ 1240.36](/cfr/12/1240.36.md) for a first-to-default credit derivative that does not meet the rules of recognition of [§ 1240.38(b)](/cfr/12/1240.38.md?p=b).
    - (ii) **Second-or-subsequent-to-default credit derivatives.**
      - (A) An Enterprise that obtains credit protection on a group of underlying exposures through a nth-to-default credit derivative that meets the rules of recognition of [§ 1240.38(b)](/cfr/12/1240.38.md?p=b) (other than a first-to-default credit derivative) may recognize the credit risk mitigation benefits of the derivative only if:

        (1) The Enterprise also has obtained credit protection on the same underlying exposures in the form of first-through-(n-1)-to-default credit derivatives; or

        (2) If n-1 of the underlying exposures have already defaulted.

      - (B) If an Enterprise satisfies the requirements of paragraph (i)(4)(ii)(A) of this section, the Enterprise must determine its risk-based capital requirement for the underlying exposures as if the Enterprise had only synthetically securitized the underlying exposure with the nth smallest risk-weighted asset amount and had obtained no credit risk mitigant on the other underlying exposures.
      - (C) An Enterprise must calculate a risk-based capital requirement for counterparty credit risk according to [§ 1240.36](/cfr/12/1240.36.md) for a nth-to-default credit derivative that does not meet the rules of recognition of [§ 1240.38(b)](/cfr/12/1240.38.md?p=b).
- (h) **Guarantees and credit derivatives other than nth-to-default credit derivatives—**
  - (1) **Protection provider.** For a guarantee or credit derivative (other than an nth-to-default credit derivative) provided by an Enterprise that covers the full amount or a pro rata share of a securitization exposure's principal and interest, the Enterprise must risk weight the guarantee or credit derivative as if it holds the portion of the reference exposure covered by the guarantee or credit derivative.
  - (2) **Protection purchaser.**
    - (i) An Enterprise that purchases a guarantee or OTC credit derivative (other than an nth-to-default credit derivative) that is recognized under [§ 1240.46](/cfr/12/1240.46.md) as a credit risk mitigant (including via collateral recognized under [§ 1240.39](/cfr/12/1240.39.md)) is not required to compute a separate counterparty credit risk capital requirement under [§ 1240.31](/cfr/12/1240.31.md), in accordance with [§ 1240.36(c)](/cfr/12/1240.36.md?p=c).
    - (ii) If an Enterprise cannot, or chooses not to, recognize a purchased credit derivative as a credit risk mitigant under [§ 1240.46](/cfr/12/1240.46.md), the Enterprise must determine the exposure amount of the credit derivative under [§ 1240.36](/cfr/12/1240.36.md).
      - (A) If the Enterprise purchases credit protection from a counterparty that is not a securitization SPE, the Enterprise must determine the risk weight for the exposure according to this subpart D.
      - (B) If the Enterprise purchases the credit protection from a counterparty that is a securitization SPE, the Enterprise must determine the risk weight for the exposure according to § 1240.42, including [§ 1240.42(a)(4)](#a-4) for a credit derivative that has a first priority claim on the cash flows from the underlying exposures of the securitization SPE (notwithstanding amounts due under interest rate or currency derivative contracts, fees due, or other similar payments).

# §1240.43. Simplified supervisory formula approach (SSFA).

- (a) **General requirements for the SSFA.** To use the SSFA to determine the risk weight for a securitization exposure, an Enterprise must have data that enables it to assign accurately the parameters described in [paragraph (b)](#b) of this section. Data used to assign the parameters described in [paragraph (b)](#b) of this section must be the most currently available data; if the contracts governing the underlying exposures of the securitization require payments on a monthly or quarterly basis, the data used to assign the parameters described in [paragraph (b)](#b) of this section must be no more than 91 calendar days old. An Enterprise that does not have the appropriate data to assign the parameters described in [paragraph (b)](#b) of this section must assign a risk weight of 1,250 percent to the exposure.
- (b) **SSFA parameters.** To calculate the risk weight for a securitization exposure using the SSFA, an Enterprise must have accurate information on the following five inputs to the SSFA calculation:
  - (1) **K—** G is the weighted-average (with unpaid principal used as the weight for each exposure) adjusted total capital requirement of the underlying exposures calculated using this subpart. KG is expressed as a decimal value between zero and one (that is, an average risk weight of 100 percent represents a value of KG equal to 0.08).
  - (2) **Parameter <I>W</I> is expressed as a decimal value between zero and one.** Parameter W is the ratio of the sum of the dollar amounts of any underlying exposures of the securitization that meet any of the criteria as set forth in [paragraphs (b)(2)(i) through (vi)](#b-2-i..b-2-vi) of this section to the balance, measured in dollars, of underlying exposures:
    - (i) Ninety days or more past due;
    - (ii) Subject to a bankruptcy or insolvency proceeding;
    - (iii) In the process of foreclosure;
    - (iv) Held as real estate owned;
    - (v) Has contractually deferred payments for 90 days or more, other than principal or interest payments deferred on:
      - (A) Federally-guaranteed student loans, in accordance with the terms of those guarantee programs; or
      - (B) Consumer loans, including non-federally-guaranteed student loans, provided that such payments are deferred pursuant to provisions included in the contract at the time funds are disbursed that provide for period(s) of deferral that are not initiated based on changes in the creditworthiness of the borrower; or
    - (vi) **Is in default.**
  - (3) Parameter A is the attachment point for the exposure, which represents the threshold at which credit losses will first be allocated to the exposure. Except as provided in [§ 1240.42(g)](/cfr/12/1240.42.md?p=g) for nth-to-default credit derivatives, parameter A equals the ratio of the current dollar amount of underlying exposures that are subordinated to the exposure of the Enterprise to the current dollar amount of underlying exposures. Any reserve account funded by the accumulated cash flows from the underlying exposures that is subordinated to the Enterprise's securitization exposure may be included in the calculation of parameter A to the extent that cash is present in the account. Parameter A is expressed as a decimal value between zero and one.
  - (4) Parameter D is the detachment point for the exposure, which represents the threshold at which credit losses of principal allocated to the exposure would result in a total loss of principal. Except as provided in [§ 1240.42(g)](/cfr/12/1240.42.md?p=g) for nth-to-default credit derivatives, parameter D equals parameter A plus the ratio of the current dollar amount of the securitization exposures that are pari passu with the exposure (that is, have equal seniority with respect to credit risk) to the current dollar amount of the underlying exposures. Parameter D is expressed as a decimal value between zero and one.
  - (5) A supervisory calibration parameter, p, is equal to 0.5 for securitization exposures that are not resecuritization exposures and equal to 1.5 for resecuritization exposures (except p is equal to 0.5 for resecuritization exposures secured by MBS guaranteed by an Enterprise).
- (c) **Mechanics of the SSFA.** KG and W are used to calculate KA, the augmented value of KG, which reflects the observed credit quality of the underlying exposures. KA is defined in [paragraph (d)](#d) of this section. The values of parameters A and D, relative to KA determine the risk weight assigned to a securitization exposure as described in [paragraph (d)](#d) of this section. The risk weight assigned to a securitization exposure, or portion of a securitization exposure, as appropriate, is the larger of the risk weight determined in accordance with this [paragraph (c)](#c) or [paragraph (d)](#d) of this section and a risk weight of 20 percent.
  - (1) When the detachment point, parameter D, for a securitization exposure is less than or equal to KA, the exposure must be assigned a risk weight of 1,250 percent.
  - (2) When the attachment point, parameter A, for a securitization exposure is greater than or equal to KA, the Enterprise must calculate the risk weight in accordance with [paragraph (d)](#d) of this section.
  - (3) When A is less than KA and D is greater than KA, the risk weight is a weighted-average of 1,250 percent and 1,250 percent times KSSFA calculated in accordance with [paragraph (d)](#d) of this section. For the purpose of this weighted-average calculation:
    - (i) The weight assigned to 1,250 percent equals
    - (ii) The weight assigned to 1,250 percent times KSSFA equals
    - (iii) The risk weight will be set equal to:
- (d) **SSFA equation.**
  - (1) The Enterprise must define the following parameters:

    e = 2.71828, the base of the natural logarithms.

  - (2) Then the Enterprise must calculate KSSFA according to the following equation:
  - (3) **The risk weight for the exposure (expressed as a percent) is equal to <I>K</I><I>SSFA</I> * 1,250.**
- (e) **Limitations.** Notwithstanding any other provision of this section, an Enterprise must assign a risk weight of not less than 20 percent to a securitization exposure.

# §1240.44. Credit risk transfer approach (CRTA).

- (a) **General requirements for the CRTA.** To use the CRTA to determine the risk weighted assets for a retained CRT exposure, an Enterprise must have data that enables it to assign accurately the parameters described in [paragraph (b)](#b) of this section. Data used to assign the parameters described in [paragraph (b)](#b) of this section must be the most currently available data; if the contracts governing the underlying exposures of the credit risk transfer require payments on a monthly or quarterly basis, the data used to assign the parameters described in [paragraph (b)](#b) of this section must be no more than 91 calendar days old. An Enterprise that does not have the appropriate data to assign the parameters described in [paragraph (b)](#b) of this section must assign a risk weight of 1,250 percent to the retained CRT exposure.
- (b) **CRTA parameters.** To calculate the risk weighted assets for a retained CRT exposure, an Enterprise must have accurate information on the following ten inputs to the CRTA calculation.
  - (1) Parameter A is the attachment point for the exposure, which represents the threshold at which credit losses will first be allocated to the exposure. Parameter A equals the ratio of the current dollar amount of underlying exposures that are subordinated to the exposure of the Enterprise to the current dollar amount of underlying exposures. Any reserve account funded by the accumulated cash flows from the underlying exposures that is subordinated to the Enterprise's exposure may be included in the calculation of parameter A to the extent that cash is present in the account. Parameter A is expressed as a value between 0 and 100 percent.
  - (2) Parameter AggUPB$ is the aggregate unpaid principal balance of the underlying mortgage exposures.
  - (3) **Parameter <I>CM</I><I>%</I> is the percentage of a tranche sold in the capital markets.** CM% is expressed as a value between 0 and 100 percent.
  - (4) Parameter Collat%RIF is the amount of financial collateral posted by a counterparty under a loss sharing contract expressed as a percentage of the risk in force. For multifamily lender loss sharing transactions where an Enterprise has the contractual right to receive future lender guarantee-fee revenue, the Enterprise may include up to 12 months of estimated lender retained servicing fees in excess of servicing costs on the multifamily mortgage exposures subject to the loss sharing contract. Collat%RIF is expressed as a value between 0 and 100 percent.
  - (5) Parameter D is the detachment point for the exposure, which represents the threshold at which credit losses of principal allocated to the exposure would result in a total loss of principal. Parameter D equals parameter A plus the ratio of the current dollar amount of the exposures that are pari passu with the exposure (that is, have equal seniority with respect to credit risk) to the current dollar amount of the underlying exposures. Parameter D is expressed as a value between 0 and 100 percent.
  - (6) Parameter EL$ is the remaining lifetime net expected credit risk losses of the underlying mortgage exposures. EL$ must be calculated internally by an Enterprise. If the contractual terms of the CRT do not provide for the transfer of the counterparty credit risk associated with any loan-level credit enhancement or other loss sharing on the underlying mortgage exposures, then the Enterprise must calculate EL$ assuming no counterparty haircuts. Parameter EL$ is expressed in dollars.
  - (7) **Parameter <I>HC</I> is the haircut for the counterparty in contractual loss sharing transactions.**
    - (i) For a CRT with respect to single-family mortgage exposures, the counterparty haircut is set forth in table 12 to paragraph (e)(3)(ii) in [§ 1240.33](/cfr/12/1240.33.md), determined as if the counterparty to the CRT were a counterparty to loan-level credit enhancement (as defined in [§ 1240.33(a)](/cfr/12/1240.33.md?p=a)) and considering the counterparty rating and mortgage concentration risk of the counterparty to the CRT and the single-family segment and product of the underlying single-family mortgage exposures.
    - (ii) For a CRT with respect to multifamily mortgage exposures, the counterparty haircut is set forth in table 1 to this [paragraph (b)(7)(ii)](#b-7-ii), with counterparty rating and mortgage concentration risk having the meaning given in [§ 1240.33(a)](/cfr/12/1240.33.md?p=a).
  - (8) Parameter LS% is the percentage of a tranche that is either insured, reinsured, or afforded coverage through lender reimbursement of credit losses of principal. LS% is expressed as a value between 0 and 100 percent.
  - (9) Parameter LTF% is the loss timing factor which accounts for maturity differences between the CRT and the underlying mortgage exposures. Maturity differences arise when the maturity date of the CRT is before the maturity dates of the underlying mortgage exposures. LTF% is expressed as a value between 0 and 100 percent.
    - (i) An Enterprise must have the following information to calculate LTF% for a CRT with respect to multifamily mortgage exposures:
      - (A) **The remaining months to the contractual maturity of the CRT (<I>CRT</I><I>RMM</I>).**
      - (B) The UPB-weighted-average remaining months to maturity of the underlying multifamily mortgage exposures that have remaining months to maturity greater than CRTRMM (MMERMM). If the underlying multifamily mortgage exposures all have maturity dates less than or equal to CRTRMM, MMERMM should equal CRTRMM.
      - (C) The sum of UPB on the underlying multifamily mortgage exposures that have remaining loan terms less than or equal to CRTRMM expressed as a percent of total UPB on the underlying multifamily mortgage exposures LTF% (LTFUPB%).
      - (D) An Enterprise must use the following method to calculate LTF% for multifamily CRTs:
    - (ii) An Enterprise must have the following information to calculate LTF% for a newly issued CRT with respect to single-family mortgage exposures:
      - (A) **The original closing date (or effective date) of the CRT and the maturity date on the CRT.**
      - (B) UPB share of single-family mortgage exposures that have original amortization terms of less than or equal to 189 months (CRTF15%).
      - (C) UPB share of single-family mortgage exposures that have original amortization terms greater than 189 months and OLTVs of less than or equal to 80 percent(CRT80NotF15%).
      - (D) **The duration of seasoning.**
      - (E) An Enterprise must use the following method to calculate LTF% for single-family CRTs: Calculate CRT months to maturity (CRTMthstoMaturity) using one of the following methods:

        (1) For single-family CRTs with reimbursement based upon occurrence or resolution of delinquency, CRTMthstoMaturity is the difference between the CRT's maturity date and original closing date, except for the following:

        (i) If the coverage based upon delinquency is between one and three months, add 24 months to the difference between the CRT's maturity date and original closing date; and

        (ii) If the coverage based upon delinquency is between four and six months, add 18 months to the difference between the CRT's maturity date and original closing date.

        (2) For all other single-family CRTs, CRTMthstoMaturity is the difference between the CRT's maturity date and original closing date.

        (i) If CRTMthstoMaturity is a multiple of 12, then an Enterprise must use the first column of Table 2 to paragraph (b)(9)(ii)(E)(2)(iii) of this section to identify the row matching CRTMthstoMaturity and take a weighted average of the three loss timing factors in columns 2, 3, and 4 as follows:

        (ii) If CRTMthstoMaturity is not a multiple of 12, an Enterprise must use the first column of Table 2 to paragraph (b)(9)(ii)(E)(2)(iii) of this section to identify the two rows that are closest to CRTMthstoMaturity and take a weighted average between the two rows of loss timing factors using linear interpolation, where the weights reflect CRTMthstoMaturity.

        (iii) For seasoned single-family CRTs, the LTF%, is calculated:

  - (10) Parameter RWA$ is the aggregate credit risk-weighted assets associated with the underlying mortgage exposures.
  - (11) Parameter CntptyRWA$ is the aggregate credit risk-weighted assets due to counterparty haircuts from loan-level credit enhancements. CntptyRWA$ is the difference between:
    - (i) Parameter RWA$; and
    - (ii) Aggregate credit risk-weighted assets associated with the underlying mortgage exposures where the counterparty haircuts for loan-level credit enhancements are set to zero.
- (c) **Mechanics of the CRTA.** The risk weight assigned to a retained CRT exposure, or portion of a retained CRT exposure, as appropriate, is the larger of RW% determined in accordance with [paragraph (d)](#d) of this section and a risk weight of 5 percent.
  - (1) When the detachment point, parameter D, for a retained CRT exposure is less than or equal to the sum of KA andAggEL%, the exposure must be assigned a risk weight of 1,250 percent.
  - (2) When the attachment point, parameter A, for a retained CRT exposure is greater than or equal to or equal to the sum of KA and AggEL%, determined in accordance with [paragraph (d)](#d) of this section, the exposure must be assigned a risk weight of 5 percent.
  - (3) When parameter A is less than or equal to the sum of KA and AggEL%, and parameter D is greater than the sum of KA and AggEL%, the Enterprise must calculate the risk weight as the sum of:
    - (i) 1,250 percent multiplied by the ratio of (A) the sum of KA and AggEL% minus parameter A to (B) the difference between parameter D and parameter A; and
    - (ii) 5 percent multiplied by the ratio of (A) parameter D minus the sum of KA and AggEL% to (B) the difference between parameter D and parameter A.
- (d) **CRTA equations.** If the contractual terms of the CRT do not provide for the transfer of the counterparty credit risk associated with any loan-level credit enhancement or other loss sharing on the underlying mortgage exposures, then the Enterprise shall calculate KA as follows:

  Otherwise the Enterprise shall calculate KA as follows:

- (e) **Limitations.** Notwithstanding any other provision of this section, an Enterprise must assign an overall risk weight of not less than 5 percent to a retained CRT exposure.
- (f) **Adjusted exposure amount (AEA)—**
  - (1) **In general.** The adjusted exposure amount (AEA) of a retained CRT exposure is equal to:
  - (2) **Inputs—**
    - (i) **Enterprise adjusted exposure.** The adjusted exposure (EAE) of an Enterprise with respect to a retained CRT exposure is as follows:
    - (ii) **Expected loss share.** The expected loss share is the share of a tranche that is covered by expected loss (ELS):
    - (iii) **Risk weight.** The risk weight of a retained CRT exposure is determined under [paragraph (d)](#d) of this section.
- (g) **Loss timing effectiveness adjustments.** The loss timing effectiveness adjustments (LTEA) for a retained CRT exposure is calculated according to the following calculation:

  Otherwise LTEA%,Tranche,CM = 100% and LTEA% ,Tranche,LS = 100%

  LTF%,CM is LTF% calculated for the capital markets component of the tranche,

  LTF%,LS is LTF% calculated for the loss sharing component of the tranche, and the share of the tranche that is covered by expected loss (ELS) and the share of the tranche that is covered by stress loss (SLS) are as follows:

- (h) **Loss sharing effectiveness adjustment.** The loss sharing effectiveness adjustment (LSEA) for a retained CRT exposure is calculated according to the following calculation:
- (i) [Reserved]
- (j) **RWA supplement for retained loan-level counterparty credit risk.** If the Enterprise elects to use the CRTA for a retained CRT exposure and if the contractual terms of the CRT do not provide for the transfer of the counterparty credit risk associated with any loan-level credit enhancement or other loss sharing on the underlying mortgage exposures, then the Enterprise must add the following risk-weighted assets supplement (RWASup$) to risk weighted assets for the retained CRT exposure.
- (k) **Retained CRT Exposure.** Credit risk-weighted assets for the retained CRT exposure are as follows:

# §1240.45. Securitization exposures to which the SSFA and the CRTA do not apply.


An Enterprise must assign a 1,250 percent risk weight to any acquired CRT exposure and all securitization exposures to which the Enterprise does not apply the SSFA under [§ 1240.43](/cfr/12/1240.43.md) or the CRTA under [§ 1240.44](/cfr/12/1240.44.md).


# §1240.46. Recognition of credit risk mitigants for securitization exposures.

- (a) **General.**
  - (1) An originating Enterprise that has obtained a credit risk mitigant to hedge its exposure to a synthetic or traditional securitization that satisfies the operational criteria provided in [§ 1240.41](/cfr/12/1240.41.md) may recognize the credit risk mitigant under [§ 1240.38](/cfr/12/1240.38.md) or [§ 1240.39](/cfr/12/1240.39.md), but only as provided in this section.
  - (2) An investing Enterprise that has obtained a credit risk mitigant to hedge a securitization exposure may recognize the credit risk mitigant under [§ 1240.38](/cfr/12/1240.38.md) or [§ 1240.39](/cfr/12/1240.39.md), but only as provided in this section.
- (b) **Mismatches.** An Enterprise must make any applicable adjustment to the protection amount of an eligible guarantee or credit derivative as required in [§ 1240.38(d) through (f)](/cfr/12/1240.38.md?p=d..f) for any hedged securitization exposure. In the context of a synthetic securitization, when an eligible guarantee or eligible credit derivative covers multiple hedged exposures that have different residual maturities, the Enterprise must use the longest residual maturity of any of the hedged exposures as the residual maturity of all hedged exposures.