Capital Reserve Reinstated for Fannie Mae and Freddie Mac

Filed in Housing Finance by on December 21, 2017 0 Comments

moneybagFederal Housing Finance Agency (FHFA) Director Mel Watt announced today that FHFA and the Treasury Department have agreed to allow Fannie Mae and Freddie Mac (the enterprises) to each maintain a $3 billion capital buffer beginning in the fourth quarter of 2017.

In 2012, the conditions for receiving federal financial support were amended to require the enterprises to transfer their quarterly profits to Treasury. Fannie Mae and Freddie Mac also were directed to gradually wind down their capital holdings, which were slated to reach zero at the end of this year. A zero capital buffer would mean that if either Fannie or Freddie posted a quarterly loss, they would be forced to take an additional draw from Treasury.

Today’s announcement alters that arrangement, allowing Fannie and Freddie to rebuild their capital reserves. Once they reach the $3 billion threshold, they will resume sending all of their profits to Treasury.

In a related development, the lower corporate tax rates in the legislation approved yesterday will significantly reduce the value of the enterprises’ deferred tax assets. Watt said it’s apparent the new corporate tax rate structure will require both Fannie and Freddie to take another Treasury draw, but believes the $3 billion capital reserve is sufficient to cover other fluctuations in income in the normal course of each enterprise’s business.

For more information, contact Becky Froass at 800-368-5242 x8529.

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