The Federal Housing Finance Authority and the Treasury Department have reached an agreement that will allow Fannie Mae FNMA,
And Freddie Mac FMCC
To maintain income for the foreseeable future
The FHFA and the Treasury agreed to amend the preferred share purchase agreements for shares in the two entities the federal government continued to hold after the Great Recession. The amendment will allow Fannie and Freddie to retain all income until the requirements set out by the new FHFA capital rules issued late last year. Under the rule, the two mortgage giants were required to hold $ 283 billion in total unadjusted capital as of June 30, 2020, based on their assets at the time.
In 2019, the two agencies reached an agreement that would allow the home loan giant to maintain a record high of $ 25 billion.Before that, all of Fannie and Freddie’s income was swept to the Treasury for dividends. To pay the federal government bail out
The two companies have spent nearly $ 25 billion in funding authorized to maintain, which is required by an agreement between the FHFA and the Treasury, FHFA officials said.
The deal unresolved Treasury’s preferred stock status and put Fannie and Freddie in conservation. Following President Joe Biden’s successful presidential campaign, the Trump administration is reportedly considering a plan to quickly free Fannie and Freddie from conservation groups, which will need to be signed by the Treasury.
Lawmakers on both sides of the corridor expressed concerns that a quick exit from the conservatives could cost taxpayers if it involved a cut of Treasury stakes in Fannie and Treasury Secretary Freddie Steven Mnuchin provided. Opinion in December that Fannie and Freddie should have “reasonable funding” before privatization.
In announcing the deal, FHFA Director Mark Calabria said it was “a step in the right direction” but he cautioned that the cumulative income alone was not enough to get Fannie and Freddie where they needed to be in. Terms of capital
“Accumulated income alone is not enough to sufficiently fund an organization,” Calabria said. “Until the organization can raise private funds, they are at risk of failing in an address crisis. Live next time “
In practice, Fannie Mae and Freddie Mac were unable to raise private equity due to Treasury preferred stocks.Fannie and Freddie stocks have little charm to today’s investors, as the terms of conservation mean they don’t receive dividends.