WASHINGTON – The U.S. Department of the Treasury (Treasury) and the Federal Housing Finance Agency (FHFA) today announced an agreement to amend the Preferred Stock Purchase Agreements (PSPAs) between Treasury and each of Fannie Mae and Freddie Mac (the GSEs) to help ensure that the eventual release of the GSEs from conservatorship will be orderly and to reflect certain existing practices. Among other things, the agreement restores Treasury’s previous right to consent to a release of the GSEs from conservatorship. In addition, under a separate side letter from FHFA to Treasury, FHFA will solicit public input, before releasing a GSE from conservatorship, regarding the potential impacts on the housing market and the GSEs.
Further information on the key changes in the letter agreements and side letter is provided below:
- Restoration of Consent Rights: As amended, the PSPAs restore Treasury’s right to consent to a release of the GSEs from conservatorship, consistent with the terms of the PSPAs from 2008 to 2021, and provide Treasury with a right to consent to any discretionary action by the FHFA to commence a receivership of the GSEs.
- Commitment to Conduct a Market Impact Assessment: As reflected in the side letter from FHFA to Treasury, prior to releasing the GSEs from conservatorship (except through receivership), FHFA will issue a public request for information outlining in detail one or more specific options for the termination of conservatorship and seek input on potential impacts of each option on the housing market and on the GSEs. This process will increase transparency to the public and key stakeholders and will help inform FHFA’s and Treasury’s decision making. FHFA will brief the Financial Stability Oversight Council on the public input, including regarding factors that could have potential impacts on U.S. financial stability. FHFA will then provide Treasury with a recommended approach to the termination of the conservatorship, reflecting the public input and assessing potential impacts on the housing market and the GSEs. Treasury will consult with the President prior to consenting to a release of the GSEs from conservatorship.
- Technical Updates: The letter agreement updates several provisions of the PSPAs to make corrections or reflect existing practices, including making technical updates to the definitions of “Indebtedness” and “Mortgage Assets”; eliminating certain business-activity restrictions from the PSPAs that have been suspended since September 14, 2021; updating references to the Enterprise Regulatory Capital Framework to refer to that framework as amended from time to time; and updating notice provisions to allow for electronic communications between the parties.
The agreements announced today do not affect the GSEs’ capital retention or the dividend payments under the senior preferred shares that the GSEs issued to Treasury. In addition, the parties are not at this time amending the expiration date of the warrants for each GSE’s common stock held by Treasury. However, Treasury expects that the parties will agree in the future to extend the September 7, 2028, expiration date to the extent appropriate in order to avoid any possibility of a disorderly or disruptive exit from conservatorship.
Click here to see the letter agreements and side letter.
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