Two federal housing finance regulators revealed their long-awaited plans to release Freddie Mac and Fannie Mae from over a decade of government control.
The Treasury Department and the Department of Housing and Urban Development released their respective proposals to recapitalize the government-sponsored enterprises before ending their 11-year conservatorships.
The reports explicitly state that while congressional reforms are preferable, the Federal Housing Finance Agency has the authority to implement its own reforms "in the absence of further Congressional action."
The Treasury document provides 49 total recommendations that the FHFA or Congress should take to reform the U.S. housing finance system.
Included in that list is a set of "preconditions" that should be met in order for the mortgage giants to be released from government control.
According to the Treasury Department, those preconditions should, "at a minimum," include that the FHFA has prescribed regulatory capital requirements for the GSEs; the FHFA has approved the GSEs' capital restoration plans and the GSEs have "retained or raised sufficient capital"; and the preferred share purchase agreements, or PSPAs, between the Treasury and GSEs have been revised to ensure the GSE fully compensates the federal government.
Under current rules, the GSEs are allowed to retain $3 billion in earnings. All excess earnings must be paid to the Treasury Department. On a call with reporters before the plans were released, a Treasury official said FHFA and the Treasury Department can take some intermediate steps while the FHFA works to implement some of the goals laid out in the documents.
"Treasury's recommending that Treasury and FHFA consider adjusting that [$3 billion] number up," the official said on the call. "That would be an interim step as we move toward negotiation of the PSPA amendment."
FHFA Director Mark Calabria is expected to begin negotiations on the PSPAs in September or October, with a final plan by the end of the year.
