Dive Brief:
- Mortgage giants Fannie Mae and Freddie Mac will be allowed to retain $45 billion worth of earnings combined, the Federal Housing Finance Agency (FHFA) announced Monday. Since 2012, Fannie and Freddie have been allowed to keep $3 billion apiece in capital cushion, with the remainder swept to the Treasury Department.
- FHFA Director Mark Calabria has said ending the so-called "net worth sweep" would be the first step toward releasing the government-sponsored enterprises from conservatorship, an overarching goal the Treasury Department outlined in a plan this month. The government took over Fannie and Freddie in 2008.
- It could take more than a year for Fannie and Freddie to reach their earnings threshold, Bloomberg reported. Fannie Mae reported net income of $16 billion last year, and Freddie Mac reported $9.2 billion. Within the $45 billion limit, Fannie Mae will be allowed to hold $25 billion, and Freddie Mac, $20 billion.
Dive Insight:
Calabria has said it would "probably take a decade" for Fannie and Freddie to collect enough capital to exit conservatorship, according to American Banker.
The FHFA and Treasury Department may continue to tinker with Fannie and Freddie's capital structures. But if a Democrat is elected president in 2020, the agencies' plan could be undone.
"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 Steven Mnuchin said in a statement.
The FHFA will also work with Treasury to increase marketplace competition in housing finance and focus on affordable housing and sustainable homeownership, Calabria said.
Fannie and Freddie "are leveraged nearly 1,000-to-one, ensuring they would fail during an economic downturn — exposing taxpayers once again," he said in the FHFA's statement Monday.
