Treasury, FHFA Take Steps to "Responsibly Wind Down" GSEs

Inrna move that virtually ends any hope that Freddie Mac and Fannie Mae will returnrnto viability, the Department of the Treasury and the Federal Housing FinancernAgency (FHFA) have revised the Preferred Stock Purchase Agreement (PSPA) betweenrnTreasury and the two government sponsored enterprises (GSEs).   The new agreement will strip the GSEs of anyrnprofit from their operations and will accelerate the rate at which they arernreducing their owned loan portfolios. </p

The agreements will replace the 10rnpercent dividend payments made to Treasury on its preferred stock investmentsrnin Fannie Mae and Freddie Mac with a quarterly sweep of every dollar of profitrnthat each firm earns going forward.  Under the existingrnagreement the Treasury Department has provided financial support to the GSEs inrnthe combined amount of $188 billion since conservatorship began in August 2008.  The GSEs have paid Treasury $46 billion inrndividends during this period frequently needing to request additional fundsrnfrom Treasury in order to do so.</p

In addition the investment portfoliosrnheld by the two companies will now be wound down at an annual rate of 15rnpercent instead of the 10 percent annual reduction required in the previousrnagreements. As a result of this change, the GSEs’ investment portfolios must bernreduced to the $250 billion target set in the previous agreements in 2018, fourrnyears earlier than previously scheduled.</p

Thernchanges will prevent the companies from rebuilding capital, and dashes thernhopes of investors who bought GSE stock on the cheap hoping they might re-emergernfrom conservatorship as viable companies. rnIt also appears that the demands of many members of Congress tornterminate the GSEs as rapidly as possible are being met.   </p

“With today’s announcement, we arerntaking the next step toward responsibly winding down Fannie Mae and FreddiernMac, while continuing to support the necessary process of repair and recoveryrnin the housing market,” said Michael Stegman, Counselor to the Secretary of thernTreasury for Housing Finance Policy.  “As we continue to work towardrnbi-partisan housing finance reform, we are committed to putting in placernmeasures right now that support continued access to mortgage credit forrnAmerican families, promote a responsible transition, and protect taxpayerrninterests.”</p

A press release from Treasury saidrnthat the “sweep” of GSE profits into the Treasury coffers would accomplishrnseveral things: </p<ul class="unIndentedList"