The Federal Housing Finance Agency (FHFA) and the U.S. Department of the Treasury have amended Fannie Mae and Freddie Mac’s Preferred Stock Purchase Agreements (PSPAs), taking an initial step that paves the way for the Trump administration to take the government-sponsored enterprises (GSEs) out of conservatorship.
The FHFA and Treasury have agreed to delete the provisions of the PSPAs that were suspended pursuant to their September 14, 2021 Letter Agreement and to make other modifications.
At that time, the FHFA and the Treasury announced that they had amended Fannie Mae and Freddie Mac’s PSPAs in order to enable to the GSEs to continue to retain earnings until they satisfied the requirements of the 2020 GSE capital rule.
The new amendment to the PSPAs restores the right of the Treasury to consent to a release of the GSEs from conservatorship. This is consistent with the terms of the PSPAs from 2008 to 2021.
The new amendment is a relatively small step in the gargantuan task of transitioning the GSEs out of conservatorship – a job which the FHFA, along with the Treasury, have been working on for years.
It is currently unclear whether the Fannie and Freddie will become fully privatized or will continue to benefit from a federal backstop after the transition, a plan for which is yet to be presented.
The changes will provide Fannie Mae and Freddie Mac with more flexibility to better support access to homeownership and rental housing, FHFA says in its release.
In addition, the amendments clarify that the GSEs must meet the capital requirements established by FHFA as amended over time. The amendments also include technical changes or clarifications applicable to the Enterprises’ financial reporting.
At the time the original PSPAs were executed in September 2008, written Treasury consent was required before the conservatorships could be terminated. The new amendments being currently proposed restore that consent right, signaling that the Trump administration is serious about taking the GSEs out of conservatorship.
The FHFA and Treasury agree that the path to ending the conservatorships should be based on the financial condition of the GSEs and potential impact of termination on the housing market.
Accordingly, the FHFA and Treasury have agreed to a process for eventual public input on termination options and potential impacts.
“The GSEs play a vital role in the national housing finance system,” says Sandra L. Thompson, director of the FHFA, in a statement. “Today’s announcement will reassure stakeholders that the enterprises’ eventual release from conservatorship will follow a methodical process intended to minimize disruption to the housing and financial markets.”
In a statement, Bob Broeksmit, CMB, chairman of the Mortgage Bankers Association, applauded the action but also urged the FHFA to proceed cautiously with the transition, so as to not disrupt the housing market.
“The MBA believes strongly that any efforts to remove Fannie Mae and Freddie Mac from their federal government conservatorships must fully consider the impact on single-family and multifamily housing markets and overall financial stability,” Broeksmit says. “This includes the critical move that Congress establishes an explicit federal backstop for mortgage-backed securities.”
“Conservatorship was never intended to be perpetual, and we support efforts toward the GSEs’ release. We appreciate the rationale behind today’s changes to the PSPAs, which are designed to foster transparency across government agencies, share market impact analysis, and give appropriate time for market participants to provide feedback on proposed reforms,” Broeksmit adds. “The GSEs are integral to homeownership and rental housing, and the transition to a post-conservatorship era must be done the right way with an ample timeline. MBA stands ready to work with the incoming Trump administration at the White House, Treasury Department, and FHFA — and also with the Congress — to ensure that happens.”
