GSEs receive significant boosts to capital cushions

A key step in the Trump administration’s plan to release Fannie Mae and Freddie Mac from conservatorship has been realized as the two government-sponsored enterprises (GSEs) will be allowed to retain up to $45 billion in combined capital.

That’s a sizable increase from the capital cushions of $3 billion each that GSEs were previously permitted to retain. Now, Fannie will be allowed to build up a capital buffer of $25 billion, while Freddie will have a $20 billion cap.

“The enterprises are leveraged nearly 1,000-to-one, ensuring they would fail during an economic downturn — exposing taxpayers once again,” said Mark Calabria, director of the Federal Housing Finance Agency (FHFA), which oversees the GSEs. “This letter agreement between Treasury and FHFA, which allows the enterprises to retain capital of up to $45 billion combined, is an important milestone on the path to reform.”

“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,” Secretary of the Treasury Steven Mnuchin said.

Both companies have repaid their respective financial bailouts, which were made with taxpayer funds during the downturn. Fannie Mae has repaid $181.4 billion, about $61.6 billion more than it received, while Freddie Mac has repaid $119.7 billion, some $48.1 billion more than its original draw.

With those initial debts repaid and the government still holding an outsized role in housing finance, the Trump administration has prioritized moves to facilitate the GSEs’ discharge from federal control.

“The status quo is not an option,” Calabria said. “Now is the time to act.”

The move was lauded by several housing and financial groups, including the Community Home Lenders Association (CHLA).

“The Community Home Lenders Association strongly commends FHFA Director Calabria and Treasury Secretary Mnuchin for their letter agreement to allow Fannie Mae and Freddie Mac to significantly increase the amount of capital they are allowed to retain,” said Scott Olson, CHLA’s executive director.

“This is good for taxpayers — and is also good for consumers and for housing markets as an essential first step towards the GSEs recapitalizing and exiting conservatorship.”

Olson’s words were echoed by Jim Nussle, president of the Credit Union National Association (CUNA).

“CUNA has been a long-standing proponent of federal efforts to ensure that any federal housing-finance reform efforts are designed to ensure a smooth transition to any modified secondary market for mortgage loans for smaller lenders, that also recognizes the importance of credit unions and the role they play in providing access to mortgage credit,” Nussle said.


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