Trump administration will not end GSE conservatorship

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Fannie, Freddie could exit conservatorship without capital

The U.S. Department of the Treasury and the Federal Housing Finance Association issued a joint statement Thursday officially announcing they decided against restructuring the taxpayers’ stake in Fannie Mae and Freddie Mac. In other words, the government-sponsored enterprises will not be exiting conservatorship under the current administration.

In a statement establishing an agreement for ongoing efforts to remove the government-sponsored enterprises from conservatorship, the Treasury established that there would be no exit with less than 3% capital from the mortgage giants.

“The letter agreements provide that there will be no exit until all material litigation relating to the conservatorship is resolved or settled, and the GSE has common equity tier 1 capital of at least 3% of its assets,” the agreement states.

It did state, however, that the GSEs would be allowed to retain more of their earnings moving forward.

“Upon the capital reserve end date, the GSEs will resume quarterly dividend payments,” the agreement states. “The dividend amount at that time will be equal to the lesser of 10% of the liquidation preference of Treasury’s senior preferred stock, or the incremental increase in the GSE’s net worth in the prior quarter. Before the capital reserve end date, Treasury and the GSEs will determine a periodic commitment fee for Treasury’s remaining funding commitment, to compensate taxpayers for their risk in supporting the GSEs.”

In December, several housing industry associations including the Mortgage Bankers Association, the American Bankers Association, the National Association of Home Builders and the National Association of Realtors sent a joint letter to Treasury Secretary Steven Mnuchin, urging him against any swift action when it came to the future of the GSEs.

This action was seen as a sign that President Donald Trump’s administration would not end conservatorship, but now, regulators made it official.

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