The Federal Housing Finance Agency (FHFA) and the U.S. Department of the Treasury (Treasury) announced amendments to the Preferred Stock Purchase Agreements (PSPAs) which will allow GSEs Fannie Mae and Freddie Mac to continue to retain earnings until they satisfy the requirements of the 2020 enterprise capital rule, [1]the FHFA announced in a press release [2].
"Today's agreement that allows Fannie Mae and Freddie Mac to continue retaining earnings is a step in the right direction, but more hard work remains," FHFA Director Mark Calabria said. “Capital at Fannie Mae and Freddie Mac protects the housing finance system and taxpayers. Retained earnings alone are insufficient to adequately capitalize the enterprises. Until the enterprises can raise private capital, they are at risk of failing in the next housing crisis."
Additionally, Treasury has agreed that the GSEs can raise private capital and exit conservatorship once certain conditions are met. To facilitate GSE equity offerings, Treasury has committed to work to restructure its investment in both Fannie and Freddie.
National Association of Realtors (NAR) President Charlie Oppler issued a statement in response to the FHFA announcement.
"While NAR appreciates administration efforts to ensure market stability and liquidity during the ongoing pandemic, the nation's largest trade association is concerned these changes would limit the enterprises' ability to appropriately serve the overall U.S. housing market as intended, most notably as it relates to first-time buyers, those in underserved communities, investor properties, and second home purchases," the NAR press release read.
The GSEs buy loans from lenders and bundle them into securities, explains the NAR notice, which they sell to investors with a guarantee. However, in order to back these guarantees, they need loss-taking capital.
NAR says it has long supported GSE reforms and continues to advocate for beneficial changes made since the 2008 financial crisis.
According to NAR, yesterday afternoon, the trade association brought together policy, academic and financial market experts to discuss the benefits of NAR's market utility option for consumers, taxpayers, and markets [3].
"Any considerations to limit financing on second homes, investor properties or entry-level borrowers will have a negative impact on borrowing costs and a broader impact on the rental market,” Oppler continued. "This would only undermine the GSEs' ability to fund many of their charter duties and appropriately serve U.S. taxpayers and consumers.”