GSE Capital Reserves Reinstated at $3B

Dec 21, 2017

The Federal Housing Finance Agency (FHFA) and the Department of the Treasury have agreed to reinstate a $3 billion capital reserve amount under the Senior Preferred Stock Purchase Agreements for the government-sponsored enterprises (GSEs).

As a result of this decision, Fannie Mae and Freddie Mac will each be able to maintain a capital buffer of $3 billion, and their respective dividend payments owed to Treasury will be calculated each quarter using the $3 billion capital buffer as a baseline. If the GSEs fail to declare and pay a full quarterly dividend, the capital buffer will be immediately terminated.

“Treasury’s first duty is to ensure that taxpayers are being protected,” said Treasury Secretary Steven T. Mnuchin. “This agreement balances the concerns of the FHFA with compensation for taxpayers. The Administration looks forward to working with Congress on comprehensive housing finance reform, a top priority in the year ahead.”

“While it is apparent that a draw will be necessary for each enterprise if tax legislation results in a reduction to the corporate tax rate, FHFA considers the $3 billion capital reserve sufficient to cover other fluctuations in income in the normal course of each enterprise’s business,” said FHFA Director Mel Watt. “We, therefore, contemplate that going forward enterprise dividends will be declared and paid beyond the $3 billion capital reserve in the absence of exigent circumstances.”

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Phil Hall

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Dec 21, 2017

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