Waiting room

21 December 2017 By Gina Chon Follow @GinaChon

The U.S. housing finance firms will be allowed to keep $3 bln in capital to absorb losses, just as their cushion was slated to go to zero. A draw on their $258 bln bailout fund could’ve also spooked markets. An overhaul is needed, but political will remains an obstacle.

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The U.S. Treasury Department and the Federal Housing Finance Agency announced on Dec. 21 that they had agreed to modify the terms of a bailout agreement for housing-finance firms Fannie Mae and Freddie Mac. The deal allows them to maintain a limited capital buffer of $3 billion each to cover normal income fluctuations.

Fannie and Freddie were taken over by the U.S. government during the 2008 financial crisis and received a $188 billion bailout. In 2012, the Treasury Department amended the bailout agreement to require Fannie and Freddie to hand over all their profit to the Treasury. The agreement reduced their capital buffers to $600 million in 2017, which will be cut to zero in 2018. Through the third quarter of 2017, Fannie and Freddie have sent $260 billion in dividends to the Treasury, which don’t count as a repayment of their bailout.

The entities still have a $258 billion government credit line that they can tap in case of losses. Treasury and the FHFA believe that a draw on that fund may be required given the tax legislation passed by Congress, which could require Fannie and Freddie to write down their deferred tax assets.

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