The U.S. Treasury has announced changes to the agreements between the agency and the Federal Housing Finance Agency (FHFA) – the conservator of Fannie Mae and Freddie Mac – that will ‘help expedite the wind-down’ of the GSEs.
The new agreements call for an accelerated reduction of the GSEs' investment portfolios, which will now be wound down at an annual rate of 15% instead of 10%. In turn, the GSEs' portfolios will be reduced to the previously-set $250 billion target four years earlier than previously scheduled.
Also, Fannie and Freddie will be required to file an annual report with the Treasury describing its actions to reduce taxpayers' exposure to mortgage credit risk for both its guarantee book of business and retained investment portfolio.
Additionally, the agreements will replace the 10% dividend payments made to Treasury on its preferred stock investments in the GSEs with a ‘quarterly sweep’ of every dollar of profit that each firm earns, going forward. This approach will stop the ‘circular practice of the Treasury advancing funds to the GSEs simply to pay dividends back to Treasury,’ the agency says.
These strategies, Treasury adds, will help improve mortgage-market liquidity by giving borrowers and lenders confidence in the GSEs' ability to meet their commitments while under conservatorship, as well as in the overall financial strength of the GSEs.