Treasury and FHFA Allow Fannie Mae and Freddie Mac to Boost Capital Reserves
The Treasury Department and the Federal Housing Finance Agency (FHFA) have announced an agreement that temporarily stops the net worth sweep by Treasury of Fannie Mae’s and Freddie Mac’s (the Enterprises) profits and allows them to increase their capital reserves to $25 billion and $20 billion, respectively.
This is an increase from $3 billion in capital reserves allowed by each Enterprise since the beginning of 2018 and is a critical first step toward permitting the Enterprises to build sufficient capital to protect taxpayers in the event of a severe market downturn or unexpected financial setback.
In a press statement, FHFA Director Mark Calabria called this change “an important milestone on the path to reform.” Treasury Secretary Steven Mnuchin expanded on Calabria’s statement, saying that these revisions to the Preferred Stock Purchase Agreements with each Enterprise “are an important step toward implementing Treasury’s recommended reforms that will define a limited role for the federal government in the housing finance system and protect taxpayers against future bailouts.”
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