Treasury Announces Plans to Wind Down Fannie Mae, Freddie Mac

""Treasury"":http://www.treasury.gov/Pages/default.aspx announced Friday a set of modifications to Preferred Stock Purchase Agreements (PSPAs) between itself and ""FHFA"":http://www.fhfa.gov/ designed to help speed up the wind down of ""Fannie Mae"":http://www.treasury.gov/press-center/press-releases/Documents/Fannie.Mae.Amendement.pdf and ""Freddie Mac"":http://www.treasury.gov/press-center/press-releases/Documents/Freddie.Mac.Amendment.pdf.

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In addition to reducing the GSEs' mortgage portfolios in a more timely manner, these modifications are designed to ensure that each firm's earnings benefit taxpayers and help reform the housing finance market.

The modifications include a few key components, such as an annual plan to reduce taxpayer exposure to mortgage credit risk and a full income sweep of all of the GSEs' future earnings to benefit taxpayers for their investment, replacing the 10 percent dividend payments made to Treasury on its preferred stock investment with a quarterly sweep of all profits each firm earns going forward.

In addition, the agreements require an accelerated reduction of Fannie Mae and Freddie Mac's investment portfolios. The GSEs' investment portfolios must be reduced to the $250 billion target set in previous agreements four years earlier than previously scheduled.

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The modified PSPAs are consistent with FHFA's strategic plan for the conservatorship of Fannie Mae and Freddie Mac released in February.

""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 Michael Stegman, counselor to the secretary of the Treasury for housing finance policy.

Treasury said it hopes to use these modifications to prevent the market from returning to its previous form and to end the ""circular practice of the Treasury advancing funds to the GSEs simply to pay dividends back to Treasury.""

""As we continue to work toward bi-partisan housing finance reform, we are committed to putting in place measures right now that support continued access to mortgage credit for American families, promote a responsible transition, and protect taxpayer interests,"" Stegman said.

In a statement released by FHFA, acting director Edward DeMarco said the PSPA modifications will help build a future for the operations of the GSEs.

""These changes provide certainty to Fannie Mae, Freddie Mac, and market participants as they continue to perform their critical mission of providing liquidity and stability to the country's housing market. The steps today are also important as Congress and policymakers contemplate the future of Fannie Mae and Freddie Mac,"" DeMarco said.