
On Thursday, the conversation about the future of government-sponsored enterprises (GSEs) in conservatorship underwent a significant shift.
The U.S. Treasury and the Federal Housing Finance Agency (FHFA) unveiled an updated agreement concerning the Preferred Stock Purchase Agreements (PSPAs) that govern Fannie Mae and Freddie Mac.
Restoration of Treasury’s Authority
The Treasury emphasized that these amendments serve to support a smooth transition out of conservatorship for the GSEs, aligning with recognized protocols for such processes.
A key element of this newly minted agreement is the restoration of Treasury’s authority to approve or reject any moves to release the GSEs from their current predicament.
Furthermore, a supplemental agreement mandates that the FHFA obtain public feedback before any GSEs exit conservatorship, focusing on the implications for the housing market and the GSEs themselves.
Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA), expressed his support for the changes to the PSPAs.
He highlighted the necessity of carefully considering housing market impacts throughout this process.
Broeksmit noted that any initiative aimed at lifting federal conservatorship must factor in effects on housing stability and overall financial health.
He also underscored the importance of a clear federal backstop for mortgage-backed securities.
Key Features of the Revised PSPAs
- Restored Consent Authority: The updates reinstate the Treasury’s power to consent to the GSEs’ exit from conservatorship, replicating terms that were in effect from 2008 to 2021.
This grants the Treasury a role in any FHFA decision to initiate receivership for the agencies.
- Market Impact Assessment: The FHFA has committed to soliciting public input before allowing any GSE exit, barring receivership scenarios.
This process will evaluate potential exit strategies, assessing their implications for both the housing market and the GSEs, ultimately fostering informed decision-making and transparency.
Insights gathered will be shared with the Financial Stability Oversight Council, with the FHFA advising Treasury on a recommended plan to end conservatorships.
- Technical Adjustments: The amendments also include technical updates to correct previous inaccuracies and better align the agreements with current practices.
Modifications clarify terms such as “indebtedness” and “mortgage assets,” eliminate certain restrictions on business activities, and enhance communication methods between the parties involved.
It is essential to note that while these updates do not alter the GSEs’ capital retention strategy or the senior preferred shares’ dividend commitments to Treasury, they do leave the expiration date of the warrants for the GSEs’ common stock unchanged for the moment.
However, there are indications that the administration might extend this date to ensure an orderly transition out of conservatorship.
Future Prospects
Initiatives to release GSEs gained traction during the Trump administration in 2019, yet faced numerous hurdles.
The current administration, represented by former FHFA Director Mark Calabria, is hinting at a more proactive approach moving forward.
Calabria, who previously deemed a privatization of the agencies by 2025 doubtful, now suggests there’s about a 70% likelihood of completing such a transition by 2027, thanks to significant groundwork already laid for this potential shift.
Investment banker Chris Whalen shared his insights, describing the slim chances of legislative action to facilitate the GSEs’ exit from conservatorship.
He advocates for swift measures following the appointment of a new FHFA director, should the administration genuinely pursue this path.
In sum, the amended PSPAs represent a pivotal move toward clarifying the future of Fannie Mae and Freddie Mac, while prioritizing transparency and stakeholder engagement at every step.
Source: Housingwire