Fannie and Freddie Now Allowed to Keep Some Profits

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Agreement has been reached between the Federal Housing
Finance Agency (FHFA) and the Department of the Treasury to reinstate a $3
billion capital reserve amount
under the Senior Preferred Stock Purchase
Agreements (SPSA) for Fannie Mae and Freddie Mac beginning in the fourth
quarter of 2017.  The change will be effective for the dividend reflecting
the GSEs’ financial condition as of the fourth quarter of 2017 which ends on
December 31. 

An amendment to the SPSA agreement in 2012 changed the
dividend payment from the GSEs to Treasury from a percentage of the GSE’s net quarterly
profits as originally agreed, to a sweep of all profits less a capital reserve
amount that steadily decreased.  The
reserve was due to hit zero after the 4th quarter 2017 payment.

Watt released an announcement Thursday morning
regarding the agreement which says in part, “While it is apparent that a draw
will be necessary for each Enterprise if tax legislation results in a reduction
to the corporate tax rate, FHFA considers the $3 billion capital reserve
sufficient to cover other fluctuations in income in the normal course of each
Enterprise’s business.  We, therefore, contemplate that going forward
Enterprise dividends will be declared and paid beyond the $3 billion capital
reserve in the absence of exigent circumstances.”

Letters from Treasury Secretary Steven T. Mnuchin to
FHFA Director Melvin Watt, confirm Treasury’s commitment to provide the GSEs “immediately
available funds in an amount determined from time to time as provided in the
Agreement, but in no event in an aggregate amount exceeding $100,000,000,000.” In
return for the funding, one million shares of senior preferred stock in the
GSEs which were transferred to the Treasury in 2008.  The amount of the commitment was subsequently
altered several times by revisions to the initial agreement.



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