The Treasury Department and the Federal Housing Finance Agency ("FHFA") agreed to modifications to the Preferred Stock Purchase Agreements ("PSPAs") for Fannie Mae and Freddie Mac. The modifications allow Fannie Mae and Freddie Mac "to retain additional earnings in excess of the $3 billion capital reserves currently permitted by their PSPAs."
As recommended under the Treasury Housing Reform Plan (the "Plan") and agreed upon by the Treasury and FHFA, Fannie Mae and Freddie Mac will be allowed to maintain capital reserves of $25 billion and $20 billion, respectively. Additionally, the Treasury reported that its liquidation preferences for Fannie Mae and Freddie Mac preferred stock will gradually increase by the amount of these additional capital reserves in order to compensate the Treasury for the dividends that it would have received under the current PSPAs until the liquidation preferences increase by $22 billion for Fannie Mae and $17 billion for Freddie Mac.
The Treasury Department, Fannie Mae and Freddie Mac also agreed to negotiate an additional amendment to the PSPAs that would further enhance taxpayer protections through the adoption of covenants that are generally consistent with the administrative reforms recommended under the Plan. As recommended under the Housing Reform Plan, Treasury and FHFA would consider establishing recapitalization plans for Fannie Mae and Freddie Mac once all of the strategic options have been assessed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
