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​Senior Preferred Stock Purchase Agreements

 
Fannie Mae and Freddie Mac continue to operate under conservatorship, as they have since 2008. The U.S. Department of the Treasury (Treasury) provides Fannie Mae and Freddie Mac with financial support through the Senior Preferred Stock Purchase Agreements, established at the same time as Fannie Mae and Freddie Mac entered conservatorships. 

The Senior Preferred Stock Purchase Agreements were designed to ensure Fannie Mae and Freddie Mac maintained positive net worth, be able to meet its outstanding obligations, and continue providing liquidity to the mortgage market.

2019 Letter Agreements on Capital Reserves

On September 30, 2019, Treasury and the Federal Housing Finance Agency (FHFA) announced that they had agreed to modifications to the Preferred Stock Purchase Agreements (PSPAs) that will permit Fannie Mae and Freddie Mac to retain additional earnings in excess of the $3 billion capital reserves currently permitted by their PSPAs.  Under the modifications, Fannie Mae and Freddie Mac will be permitted to maintain capital reserves of $25 billion and $20 billion, respectively.  These changes to the PSPAs were recommended in the Treasury Housing Reform Plan released on September 5, 2019.  FHFA Director Mark Calabria issued a statement on this change.

2017 Letter Agreements on Capital Reserves

On December 21, 2017, FHFA and the Department of the Treasury agreed to reinstate a $3 billion capital reserve amount for each Enterprise.  In a letter agreement to each of the Enterprises, Treasury and FHFA as Conservator agreed to change the terms of the Senior Preferred Stock certificate to permit each Enterprise to retain a $3 billion capital reserve each quarter.  As a result of these agreements, an Enterprise will only pay a dividend to Treasury if the net worth at the end of a quarter is more than $3 billion.  These terms apply to any quarterly dividend paid for the fourth quarter of 2017 and each quarter thereafter.  FHFA Director Mel Watt issued a statement on this change.

2012 Changes to SPSPAs

In August 2012, Treasury and FHFA changed the Senior Preferred Stock Purchase Agreements with Fannie Mae and Freddie Mac.  In addition to requiring a faster wind-down of their portfolios, the 10 percent fixed-rate dividend was replaced with a variable structure, essentially directing all net income to the Treasury.  Replacing the current fixed dividend in the agreements with a variable dividend based on net worth helps ensure stability, fully captures financial benefits for taxpayers, and eliminates the need for Fannie Mae and Freddie Mac to borrow from the Treasury Department to pay dividends.

As Fannie Mae and Freddie Mac shrink, the continued payment of a fixed dividend could have called into question the adequacy of the financial commitment in the preferred stock agreements.  The accelerated decrease of the retained mortgage portfolio reduces risk exposure.

The changes also give a level of certainty to Fannie Mae, Freddie Mac, and market participants.

Treasury Consent for Enterprise Actions

Although Fannie Mae and Freddie Mac must obtain Treasury approval for certain actions, the original agreements allowed exceptions. In 2012, an additional exception was added. Fannie Mae and Freddie Mac no longer need Treasury consent for asset disposition as long as the fair market value of the asset is less than $250 million.

Risk Management Plans

Fannie Mae and Freddie Mac are each now required to submit an annual risk management plan to Treasury under FHFA direction.  Each plan must support a well-managed wind-down and include how they plan to reduce taxpayer losses.  In 2012, Fannie Mae and Freddie Mac submitted these plans to FHFA.


Senior Preferred Stock Purchase Agreements


Fannie Mae

Fannie Mae Capital Agreement (Letter) (September 27, 2019)
Letter Agreement (December 21, 2017)
Third Amendment to Fannie Mae’s Senior Preferred Stock Purchase Agreement with Treasury (August 2012)
Second Amendment to Fannie Mae's Senior Preferred Stock Purchase Agreement with Treasury (December 2009)
First Amendment to Fannie Mae's Senior Preferred Stock Purchase Agreement with Treasury (May 2009)
Fannie Mae's Senior Preferred Stock Purchase Agreement with Treasury (September 2008)
       

Freddie Mac

Freddie Mac Capital Agreement (Letter) (September 27, 2019)
Letter Agreement (December 21, 2017)
Third Amendment to Freddie Mac's Senior Preferred Stock Purchase Agreement with Treasury (August 2012)
Second Amendment to Freddie Mac's Senior Preferred Stock Purchase Agreement with Treasury (December 2009)
First Amendment to Freddie Mac's Senior Preferred Stock Purchase Agreement with Treasury (May 2009)
Freddie Mac's Senior Preferred Stock Purchase Agreement with Treasury (September 2008)
    

Related Links


Treasury Department and FHFA Modify Terms of Preferred Stock Purchase Agreement for Fannie Mae and Freddie Mac (9/30/2019)
Statement from FHFA Director Mark Calabria on Letter Agreement with Treasury to Increase Fannie, Freddie Capital Retention (9/30/2019)
Treasury and Federal Reserve Purchase Programs for GSE and Mortgage-Related Securities  
Statement of FHFA Acting Director Edward J. DeMarco on Changes to Fannie Mae and Freddie Mac Preferred Stock Purchase Agreements (8/17/2012) 
Frequently Asked Questions: Treasury Senior Preferred Stock Purchase Agreement     
Fact Sheet: Treasury Senior Preferred Stock Purchase Agreement
FHFA Mortgage Market Note 10-1:  U.S. Treasury Support for Fannie Mae and Freddie Mac
Fannie Mae Preferred Stock Certificate
Freddie Mac Preferred Stock Certificate

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