The U.S. Department of the Treasury and the Federal Housing Finance Agency (FHFA) have amended the preferred stock purchase agreements (PSPAs) between Treasury and Fannie Mae and Freddie Mac.
The amendments will help ensure that the eventual release of Fannie and Freddie, also called government-sponsored entities (GSEs), from conservatorship will be orderly and to reflect certain existing practices. Further, the agreement restores Treasury’s previous right to consent to a release them from conservatorship. In addition, under a separate side letter from FHFA to Treasury, FHFA will solicit public input regarding the potential impacts of releasing them from conservatorship.
Specifically, the amendments cover three primary areas:
Restoration of Consent Rights: As amended, the PSPAs restore Treasury’s right to consent to a release of the GSEs from conservatorship, consistent with the terms of the PSPAs from 2008 to 2021, and provide Treasury with a right to consent to any discretionary action by the FHFA to commence a receivership of the GSEs.
Commitment to Conduct a Market Impact Assessment: As reflected in the side letter from FHFA to Treasury, prior to releasing the GSEs from conservatorship, FHFA will issue a public request for information outlining in detail one or more specific options for the termination of conservatorship.
Technical Updates: The letter agreement updates several provisions of the PSPAs to make corrections or reflect existing practices, including making technical updates to the definitions of “Indebtedness” and “Mortgage Assets.” Other corrections include eliminating certain business-activity restrictions from the PSPAs that have been suspended since September 14, 2021; updating references to the Enterprise Regulatory Capital Framework to refer to that framework as amended from time to time; and updating notice provisions to allow for electronic communications between the parties.
The agreements do not affect the GSEs’ capital retention or the dividend payments under the senior preferred shares that the GSEs issued to Treasury.
In addition, the parties are not amending the expiration date of the warrants for each GSE’s common stock held by Treasury. However, Treasury expects that the parties will agree in the future to extend the Sept. 7, 2028, expiration date to the extent appropriate in order to avoid any possibility of a disorderly or disruptive exit from conservatorship.