Fannie Mae (OTCQB:FNMA) will be allowed to hold $25B of capital and Freddie Mac (OTCQB:FMCC) will be allowed to keep $20B of capital, the U.S. Treasury Department and Federal Housing Finance Agency announce, taking a key step in the Trump Administration’s plan to release the mortgage giants from government control.
The agencies agree to modify the preferred stock purchase agreements that currently allow the GSEs to each hold onto only $3B of capital reserves.
The agencies plan to make additional changes to Fannie and Freddie’s capital structures.
To compensate Treasury for the dividends that it would have received absent these modifications, Treasury’s liquidation preferences for its Fannie and Freddie preferred stock will gradually increase by the amount of the additional capital reserves until the liquidation preferences increase by $22B for Fannie Mae and $17B for Freddie Mac.
The Treasury, Fannie, and Freddie also agreed to negotiate additional amendments to the PSPAs that would further enhance taxpayer protections by adopting covenants that are broadly consistent with the recommendations for administrative reforms contained in the housing reform plan the Treasury submitted earlier this month.
Previously: Fannie, Freddie poised to pause Treasury sweeps soon – WSJ (Sept. 23)
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