Fannie and Freddie to keep $3B in reserves

Funds meant to serve as buffer against future losses

U.S. Treasury building and Mel Watt
U.S. Treasury building and Mel Watt

From TRD New York: Fannie Mae and Freddie Mac, the country’s two dominant mortgage giants, will get to keep $3 billion in capital in an agreement reached by the U.S. Treasury Department and the Federal Housing Finance Agency.

The agreement is meant to help protect the companies from future losses, according to the Wall Street Journal.

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The terms of Fannie and Freddie’s relationship with the government changed in 2012, when the Obama administration required them to send the majority of their profits as a dividend to the Treasury. However, FHFA Director Mel Watt has been working to change the relationship because Fannie and Freddie would have no capital as of January, which could force them to rely on a government backstop if they do not make a quarterly profit.

Fannie and Freddie had to borrow about $187 billion in the wake of the 2008 financial crisis, and they had paid the government about $276 billion in dividends through September. Under the new agreement, they will pay the Treasury $600 million at the end of the month rather than the $3 billion they would have owed under the previous arrangement.

“Treasury’s first duty is to ensure that taxpayers are being protected,” Treasury Secretary Steven Mnuchin said in a statement, according to the Journal. “This agreement balances the concerns of the FHFA with compensation for taxpayers.” [WSJ]Eddie Small

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