A number of industry groups and lawmakers have requested a reduction in the roles Fannie Mae and Freddie Mac play in the mortgage industry, and the Department of the Treasury may have finally answered these calls.
In a recent announcement, the agency said that in collaboration with the Federal Housing Finance Agency, which oversees mortgage activity at the government-sponsored enterprises, changes will be made to the Preferred Stock Purchase Agreements.
Through this initiative, in an effort to quickly reduce the hand Fannie and Freddie have in issuing and backing home loans, the companies will repay more of their quarterly profits to the Treasury for the bailouts they received in the wake of the real estate bubble burst. The mortgage giants must ensure every dollar they make benefits taxpayers.
"With today’s announcement, we are taking the next step toward responsibly winding down Fannie Mae and Freddie Mac, while continuing to support the necessary process of repair and recovery in the housing market," said secretary counselor for Housing Finance Policy at the Treasury, Michael Stegman.
It's believed this effort could help work toward greater cooperation between lawmakers on both sides of the political aisle in regard to housing finance reform, Stegman added. For the time being, the Treasury is committed to providing Americans with access to mortgages as well as protecting taxpayer interests, despite the changes.
These changes will also require Fannie and Freddie to reduce the mortgage portfolios at a more rapid rate. In accordance with the Treasury's PSPAs strategic plan, both GSEs will now have to thin their home loan portfolios at an annual rate of 15 percent, which is an increase from the previous rate of 10 percent.
Further, both companies, under the direction of the Treasury and the FHFA, are now required to submit annual reports on how they plan to reduce taxpayer exposure to risks in the mortgage industry on both their guarantee books of business and retained investment portfolio.
It's thought this initiative could put an end to an odd situation making it difficult for Fannie and Freddie to pay back bailout dividends. Under the previous terms to make 10 percent dividend payments, both Fannie and Freddie found themselves borrowing additional money from the government just to meet these requirements, resulting in a damaging cycle of debt.