The Treasury Department and the Federal Housing Finance Agency (FHFA) have announced that mortgage-finance companies Fannie Mae and Freddie Mac will be allowed to start keeping earnings after holding only small capital cushions for the past seven years. The two companies will be permitted to retain a combined $45 billion worth of earnings, a far cry from the $3 billion each the companies were previously allowed. Under the new agreement, Fannie Mae will be allowed to retain $25 billion and Freddie Mac will be able to retain $20 billion.
Fannie and Freddie are central players in the housing market. The two private companies guarantee over half of the nation’s mortgages and packages them for issuance as securities. The companies were effectively nationalized by the government in a bid to stabilize the housing market during the 2008 financial crisis as mortgage defaults mounted.
Under the terms of the previous agreement, Fannie and Freddie sent nearly all of their profits to the Treasury Department every quarter for continued access to more than $250 billion in government support. The two companies have been generally profitable in recent years and have drawn on that support only once since 2012. According to public data, Fannie and Freddie have paid the Treasury a total of $292 billion profits since 2012, more than the $191.5 billion in government support they received.
The Treasury and the FHFA are expected to negotiate other changes to the terms of the companies’ existing support agreement with Treasury. One change would be the creation of a fee the companies’ would be required to pay in exchange for ongoing support from the Treasury, which is a necessary part of their business model. FHFA Director Mark Calabria said in a statement, “FHFA commits to working with Treasury in the coming months to amend the share agreements and further advance broader housing finance reform.”