The U.S. Department of Treasury (Treasury) and the Federal Housing Finance Agency (FHFA) announced on September 30 that they have modified the Preferred Stock Purchase Agreement (PSPA) to allow Fannie Mae and Freddie Mac (the Enterprises) to retain earnings. This announcement comes on the heels of an announcement from FHFA Director Mark Calabria regarding new multifamily loan purchase caps. The new PSPA will allow Fannie Mae to retain $25 billion in reserves and Freddie Mac to retain $20 billion in reserves. These new levels are a significant increase from the existing reserve levels of $3 billion for each Enterprise, which was agreed to the last time the PSPA’s were modified in January 2018.
Allowing the Enterprises to begin to build capital is an important first step towards ending the conservatorship of the Enterprises that started in September 2008. FHFA has yet to release a final regulatory capital framework for the Enterprises that would dictate the total amount of capital needed to end conservatorship, but it will likely be significantly more than the new reserve amounts in the PSPA. FHFA is expected to release the capital framework during the fourth quarter of 2019 or the first quarter of 2020.
NMHC and NAA will closely monitor the release of the capital framework to ensure it accurately reflects the risks of the Enterprises multifamily businesses. NMHC and NAA are also anxiously awaiting the release of the 2020 Scorecard, which will provide a detailed roadmap for 2020 for both multifamily and single family.
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