The nation’s two biggest mortgage lenders, Fannie Mae and Freddie Mac, will now be able to retain a larger share of their profits as the United States looks to transition them into private control.
The Treasury Department and Federal Housing Finance Agency announced Monday that a new letter of agreement aims to boost the capital reserves of Fannie Mae and Freddie Mac.
After the 2008 recession, the two housing giants were a major focus of the bailout that helped stabilize the U.S. economy. Both private companies were placed under government control and had their quarterly profits swept for years in order to cover the cost of keeping them afloat.
Together, Fannie Mae and Freddie Mac comprise about half of the nation’s guaranteed loans. The companies provide loans to low and moderate income home buyers.
A report from Reuters notes that the decision stems from a larger housing policy overhaul that would eventually shrink the footprints of Fannie Mae and Freddie Mac.
Under the new agreement, Fannie Mae will be able to keep $25 billion in profit and Freddie Mac will be able to keep $20 billion. The two companies have paid the U.S. Treasury $292 billion since 2012, when the profit sweeps were put into effect. They had received $191.5 billion in government support through the bailout package.
Officials are hoping the two companies can develop other ways to build capital outside of retained earnings, calling the status quo “not an option,” according to American Banker.
The news represents a sign of how far the housing market has come since the crash, but also shows just how much these two institutions have supported it. Given their financial positions, continued siphoning of profits would simply have left them vulnerable in the event of another crash — again requiring the government to step in to the rescue.
Photo credit: MrHarman/Creative Commons – Fannie Mae facility in Reston, Virginia