The Federal Housing Finance Agency (“FHFA”) and the U.S. Department of the Treasury (“Treasury”) have announced amendments to the Preferred Stock Purchase Agreements (“PSPAs”) that govern the conservatorship of Fannie Mae and Freddie Mac (the “GSEs”).
The PSPAs were established during the 2008 financial crisis to stabilize Fannie Mae and Freddie Mac, which were facing severe liquidity challenges. The PSPAs were previously amended in September 2021 when several provisions of the original agreements were suspended. The new agreements delete the suspended provisions and include additional new amendments that the FHFA states will help facilitate an orderly termination of the GSEs from conservatorship and ensure the impact of the termination on the housing market is considered.
Under the initial agreements, written consent from Treasury was required before conservatorship of the GSEs could be terminated. This requirement was removed from the agreements in 2021, but it has now been restored as a requirement. The updated agreements also provide Treasury with a right to consent to any discretionary action by the FHFA to commence a receivership of the GSEs.
FHFA and the Treasury “agree that the path to ending the conservatorship should be based on the financial condition of the GSEs and potential impact of termination on the housing market.” Under the new agreements, the FHFA must seek public input on conservatorship termination options and the potential effects of termination on the housing market before seeking consent from the Treasury to release the GSEs from conservatorship.
In addition, the amendments clarify that the GSEs must meet the capital requirements established by FHFA as amended over time. The amendments also include technical changes and clarifications applicable to the GSEs’ financial reporting, but do not affect dividend payments.
”The [GSEs] play a vital role in the national housing finance system,” said FHFA Director Sandra L. Thompson. “Today’s announcement will reassure stakeholders that the [GSEs’} eventual release from conservatorship will follow a methodical process intended to minimize disruption to the housing and financial markets.”
The amendments to the Preferred Stock Purchase Agreements show that the FHFA and Treasury agree on some broad guidelines for ending the GSEs’ conservatorship, but they do not provide a timeframe for the process. DocMagic will continue provide updates on any new developments affecting the PSPAs and the impact of these amendments on the GSEs.
