Wind Down of GSEs-FANNIE/FREDDIE can’t continue to hold profits

Posted in REO -Lender Owned Properties by Administrator on the August 17th, 2012

The Treasury Department Friday morning unveiled a bold new plan to speed up the dissolution of Fannie Mae and Freddie Mac, saying the two can no longer retain profits and must reduce their massive portfolio holdings at an annual rate of 15%.

In particular, Treasury notes that it wants to end what it calls “the circular practice” of the agency advancing funds to the GSEs simply to pay dividends back to Treasury.

According to a statement issued by the government: “Those portfolios will now be wound down at an annual rate of 15%—an increase from the 10% annual reduction required in the previous agreements. As a result of this change, the GSEs’ investment portfolios must be reduced to the $250 billion target set in the previous agreements four years earlier than previously scheduled.”

Currently, Fannie and Freddie hold about $1.4 trillion in mortgage assets.

Both GSEs recently returned to profitability–even after factoring in 10% dividend payments they must pay to Treasury which controls a special class of their preferred stock.

“With today’s announcement, we are taking the next step toward responsibly winding down Fannie Mae and Freddie Mac, while continuing to support the necessary AUG 17, 2012 process of repair and recovery in the housing market,” said Michael Stegman, counselor to the secretary of the Treasury for Housing Finance Policy.  “As we continue to work toward bipartisan housing finance reform, we are committed to putting in place measures right now that support continued access to mortgage credit for American families, promote a responsible transition and protect taxpayer interests.”

The agency said it wants to make sure that, “every dollar of earnings each firm generates is used to benefit taxpayers, and support the continued flow of mortgage credit during a responsible transition to a reformed housing finance market.”

Could this spur liquidations of  REO properties in the near future- they can’t run their companies forever…

AUG 17, 2012

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