Long-Term Outlook for Agency Financing Remains an Open Question

Coinciding with the announcement of third quarter net worth deficits at Fannie Mae and Freddie Mac, the Federal Housing Finance Administration submitted related funding requests for $13.2 billion to the Treasury. Under the terms of the Senior Preferred Share Agreement in place since the September 2008 conservatorship of the two government-sponsored enterprises, the Treasury has seen its related stake in the mortgage giants increase to $72.2 billion at Freddie Mac and $112.6 billion at Fannie Mae†. A direct result of the terms of these investments, the agencies’ required dividend payments back to the public purse – approaching $20 billion per year – preclude their return to profitability and independent emergence from conservatorship without some structural change.

Consistent with the counter cyclical performance of mortgage loans, the more recent vintages of the agencies’ single-family mortgages exhibit relatively low default rates when compared to loans made during the housing boom. And while the latter remain a drag on the overall health and viability of the agencies, both have remained active in supporting both single-family and rental housing credit availability as part of their current policy mandates.