Agreement Allows Fannie, Freddie to Retain Earnings

October 1, 2019

Fannie Mae and Freddie Mac, which have been giving nearly all of their profits to the U.S. Treasury Department since coming under government conservatorship in 2008, will now be able to retain $45 billion worth of earnings in an agreement with President Donald Trump’s administration that is intended to help the GSEs return to private ownership.

Mark Calabria, director of the Federal Housing Finance Agency, called the agreement, which was struck Monday, “an important milestone on the path to [housing finance] reform.” Housing analysts say that allowing Fannie and Freddie to retain profits will help the mortgage companies accumulate more capital and enable them to operate privately once 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 government took control of Fannie and Freddie during the 2008 financial crisis in an attempt to stabilize a housing market in tumult. The GSEs purchase about half of all U.S. mortgages from lenders and package them for issuance as securities.

The National Association of REALTORS® has long supported housing finance reform and says it will work to ensure any changes are advantageous for 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 REALTORS® 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 currently hold about $3 billion each in capital, The Wall Street Journal reports. Under the new agreement, they will be allowed to retain over a year’s worth of profits, equating to $25 billion for Fannie and $20 billion for Freddie. Last month, the White House released a proposal to reform the GSEs and gradually end the federal government’s decade-long conservatorship of them.

Fannie, Freddie to Retain Earnings,” The Wall Street Journal (Sept. 30, 2019) and “U.S. Allows Fannie Mae, Freddie Mac to Start Keeping Profits,” Reuters (Sept. 30, 2019)