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Monday, September 23, 2019

Fannie, Freddie poised to pause Treasury sweeps soon

Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCCare expected to start keeping their earnings as early as this week, putting on hold the arrangement in which the two mortgage-finance giants handed over most of their profits to the Treasury Department since the government put them in conservatorship during the financial crisis, writes the Wall Street Journal.
That will be the first step in allowing the companies to build up their capital to prepare them to become private companies once again.
Under the agreement, Fannie and Freddie would be allowed to keep about a year’s worth of profits, or ~$20B, Federal Housing Agency Finance chief, Mark Calabria told the WSJ in an interview.
Each of the companies is now allowed to hold only $3B in capital.
“We’re in the middle of negotiations with Treasury, but I think we’re close,” Calabria said. “I hope to have it done by the end of the month.”
He also said that taxpayers would get additional shares in Freddie and Fannie — equivalent to new stakes in a firm preparing to launch an initial public offering — in exchange for allowing the companies to retain earnings now.
The two companies have paid a total of ~$300B in dividends to the U.S. Treasury, after having taken $190B from taxpayers in the years after the financial crisis.
KBW analyst Bose George writes that it’s still unlikely Fannie and Freddie will be recapitalized during the current Trump presidency.

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