Aug. 20, 2012 – The Treasury Department announced Friday it has amended the terms of its preferred stock purchase agreements with Fannie Mae and Freddie Mac and is now requiring the two companies to speed up the wind-down process of their holdings.
Under the new agreements, Treasury said Fannie and Freddie would need to reduce their holdings of mortgage securities and loans at a pace of 15 percent a year, up from 10 percent. By the end of the year, Fannie and Freddie’s mortgage portfolios must not exceed $650 billion. As a result of the modification to the agreements, the two entities’ mortgage portfolios would be reduced to $250 billion each by 2018, which is four years earlier than previously planned.
The previous requirement that Fannie and Freddie pay a 10 percent dividend to Treasury on its preferred stock investments will be replaced with a quarterly sweep of all profits that each company earns going forward. Treasury said the move is designed to maximize the amount of return to taxpayers. The preferred stock purchase agreements were established by Treasury to ensure that Fannie and Freddie maintained positive net worth.
The announcement comes following a report earlier this month that both Fannie Mae and Freddie Mac reported positive financials for the first half of the year. Fannie Mae generated $5.1 billion in net income during the second quarter, bringing total net income for the first half to $7.8 billion. Freddie Mac reported second-quarter net income of $3 billion and mid-year net income of $3.6 billion.
In response to Treasury’s announcement, NAFCU President and CEO Fred Becker noted that the association “supports policy moves that help keep a viable and healthy impartial secondary market, which is vital to providing credit unions with the liquidity necessary to extend affordable mortgages to their members.”
NAFCU continues to work closely with Treasury and lawmakers as discussion continues about how to reform the housing finance system. The association is advocating for a set of core principles that maintain the value of the government-sponsored-enterprises in ensuring liquidity for credit union mortgage loans. NAFCU has urged that any reform package provide for at least two GSEs, with an explicit government guarantee, to ensure credit unions continued access to the secondary market.
A copy of the modified preferred stock purchase agreements is available online for both Fannie and Freddie.