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On January 14, the Treasury Department and the Federal Housing Finance Agency (FHFA) announced that they modified the preferred stock purchase agreement (PSPA) regarding Fannie Mae and Freddie Mac, which will allow them to build more capital but leaves their conservatorship in place for the foreseeable future. Importantly, Treasury stated in the statement that Fannie and Freddie must remain in conservatorship “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 also outlines modifications to raising capital, business operations and future payment to the Treasury.
“Today's agreement that allows Fannie Mae and Freddie Mac to continue retaining earnings is a step in the right direction, but more hard work remains," said FHFA Director Mark Calabria.
Treasury will have an active role to facilitate moving forward in allowing the Enterprises to raise private capital that will require them to modify their ownership stake in the Enterprises.
“Treasury has agreed that the Enterprises can raise private capital and exit conservatorship once certain conditions are met. To facilitate Enterprise equity offerings, Treasury has committed to work to restructure its investment in each Enterprise.”
Additional highlights of several key provisions of the new agreement include:
- Multifamily fixed purchase cap:
- Each Enterprise cannot purchase more than $80 billion of multifamily mortgages in any 52-week period.
- Each Enterprise shall ensure that 50% of multifamily purchased are classified as mission driven.
- Retention of earnings- the existing cap of $25 billion for Fannie Mae and $20 billion for Freddie Mac is waived until such time they meet the capital levels in the Enterprise Regulatory Capital Framework (the capital rule) published in December 2020.
- Treasury will determine a commitment fee to be paid for their ongoing support of the Enterprises.
- Enterprises can raise $70 billion each through a public stock offering. Treasury must first exercise its warrants to acquire 79.9% of the Enterprise common stock and all outstanding litigation above $5 billion must be settled.
The modification to the multifamily purchase cap leaves a number of questions unanswered:
- How difficult will it be for the Enterprises to manage a rolling 52-week purchase cap?
- Does it override the existing $70 billion cap immediately?
- Does it eliminate the existing subgoal of 20% of all purchase volume at or below 60% AMI?
- Does it eliminate any discretion on the part of the Director to change the purchase caps or subgoals going forward?
NMHC and NAA will engage FHFA and the Treasury to determine how the execution of the multifamily provisions in the agreement will impact the industry. For more information on GSEs and housing financing reform, please visit the NMHC advocacy webpage.
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