U.S. allows Fannie Mae, Freddie Mac to start keeping profits

WASHINGTON (Reuters) - Housing giants Fannie Mae and Freddie Mac will be permitted to retain a total of $45 billion in earnings going forward, as an initial step toward exiting government control.

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In a joint statement released Monday, the Treasury Department and Federal Housing Finance Agency, which regulates the pair, said the new policy will allow the two to rebuild capital reserves.

“This letter agreement between Treasury and an important milestone on the path to reform,” said FHFA Director Mark Calabria in a statement.

Ending the government’s sweep of their quarterly profits was widely seen as a first step in any effort to end the 2008 bailout of Fannie and Freddie -- two private companies that guarantee over half of the nation’s mortgages.

In a report released this month detailing a housing policy overhaul, the Treasury recommended ending the profit sweep as part of a comprehensive effort to shore up their finances and shrink their overall footprint in the market.

Undoing that sweep helps the pair rebuild their own reserves, which policymakers say is a critical first step towards eventually removing the two from government control altogether.

The Treasury holds warrants representing 80% of Fannie and Freddie’s common stock, as well as senior preferred stock agreements.

Those agreements were modified in 2012 to bar Fannie and Freddie from retaining a significant amount of profits. Now, the Treasury says Fannie and Freddie can retain $25 billion and $20 billion, respectively.

However, Calabria has also said he would like to explore other ways for the companies to raise capital, saying it could take years for the pair to build sufficient reserves simply by retaining earnings.

Since 2012, Fannie and Freddie have paid the Treasury a total of $292 billion profits, exceeding the $191.5 billion in government support they received, according to public data.

Reporting by Pete Schroeder; Editing by Catherine Evans and David Gregorio