The government says Fannie Mae and Freddie Mac will be allowed to retain $45 billion worth of their earnings this year, as part of a plan to help the government-sponsored entities return to private ownership.
The vast majority of Fannie’s and Freddie’s profits have gone to the U.S. Treasury Department ever since they went into government conservatorship in 2008. The government took control of the two organizations during the Great Recession in an effort to stablize a fast-falling housing market. Between them, the two GSEs purchase around half of all mortgages in the U.S. and package them for issuance as securities.
Federal Housing Finance Agency Director Mark Calabria said the agreement, revealed on Monday, is an “important milestone” on the path to reform.
Analysts agree that Fannie and Freddie should both retain profits in order to accumulate more capital, which in future will enable them to operate privately again.
“These modifications 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,” Treasury Secretary Steve Mnuchin said in a statement.
The National Association of Realtors also supported the move, and said in a statement it will work to ensure that the changes ultimately benefit consumers.
“NAR appreciates the Treasury Department and FHFA’s work to advance housing finance reform and protect taxpayers by increasing available capital within the system,” NAR President John Smaby said in a statement. “While Realtors eye GSE reforms that ensure responsible, creditworthy Americans can secure a mortgage in all types of markets, we urge Congress and the administration to work together toward a consensus that will create a housing finance system that protects taxpayers, supports homeownership, and maximizes competition. The private utility model we proposed earlier this year outlines the best possible path forward for the GSEs, and we will continue to work closely with policymakers to shape positive, pragmatic system reforms.”
Fannie and Freddie are said to hold just $3 billion each in capital at present. Under the new agreement however, they’ll be able to retain one year’s worth of profits, which amounts to around $25 billion for Fannie and $20 million for Freddie.