QUICK TAKE: FNMA And FHLMC Conservatorship Near End

The government agencies Fannie Mae and Freddie Mac might regain some of their autonomy.

The Trump Administration has announced its first formal plan to separate the two agencies from government control and influence. Part of the plan would include allowing the two to keep more capital on hand.

Today, CNBC reported that Treasury Secretary Steven Mnuchin said President Donald Trump “has approved” the Treasury’s plan to reform mortgage giants Fannie Mae and Freddie Mac. Mnuchin appeared before the Senate Banking Committee Tuesday and refused to confirm that when asked then, but said he had since confirmed it.

Secretary Mnuchin also said that negotiations were underway to end the Treasury sweep of Fannie Mae and Freddie Mac’s profits. This reclaimed money would be used to recapitalize the two.

On this news, Cowen Washington Research Group put out a note to clients saying the so-called “profit sweep,” where all of the GSEs’ profits are transferred to the Treasury each quarter, may end as early as this month.

“We expect a deal prior to Sept. 30 in which Fannie and Freddie will stop paying a quarterly dividend to Treasury,” Jaret Seiberg, Cowen’s managing director, wrote in the note. “Instead, they will pay a commitment fee for the outstanding preferred capital line. This means they can retain the rest of their profits in order to rebuild capital.”

The two housing giants have been under conservatorship for the last 11 years since the 2006 housing crisis. Combined the two private companies back approximately $5 trillion of mortgage loans.

The objectives of the administration’s plan are to create a limited role for the federal government in the housing finance system, enhance taxpayer protections and increase the role of private sector competition.

The objectives of the administration’s plan, according to Treasury officials, are to create a limited role for the federal government in the housing finance system, enhance taxpayer protections, and increase the role of private sector competition. Accomplishing all of this will take legislative and administrative action.

“This plan addresses this last unfinished business of the financial crisis in a way that preserves what works in the current system, protects taxpayers, and reduces the influence of the Federal Government in the housing finance system,” the report says.

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