Last Thursday, Treasury announced that to further "support their ongoing stability," it has, for the second time, amended the terms of the Senior Preferred Stock Purchase Agreements (PSPAs) with Fannie Mae (FNM) and Freddie Mac (FRE), initially entered into in September 2008 following the conservatorships of both entities. In particular, Treasury is amending the PSPAs to:

  • Allow the cap on Treasury's funding commitment under these agreements to increase as necessary to accommodate any cumulative reduction in net worth over the next three years, and at the conclusion of the three-year period, the remaining commitment will then be fully available to be drawn per the terms of the PSPAs; and
  • Cap the size of the GSE's retained mortgage portfolios and require that the portfolios be reduced over time (the portfolio reduction requirement for 2010 and thereafter will be applied to the maximum allowable size of the portfolios, or $900 billion per institution, rather than the actual size of the portfolio at the end of 2009);

Through September 30, 2009, total funding provided under the PSPAs has been $60 billion for FNM and $51 billion for FRE. According to Treasury, the foregoing amendments "leave no uncertainty about Treasury's commitment to support these firms as they continue to play a vital role in the housing market during this current crisis."

Separately, as part of a "commitment to wind down programs that were established during the crisis and are no longer critical to financial stability," Treasury will conclude on December 31, 2009, two programs established under the Housing and Economic Recovery Act of 2008:

1) Treasury's purchase of GSE-guaranteed mortgage-backed securities, of which Treasury anticipates that "it will have purchased approximately $220 billion of securities across a range of maturities"; and

2) Treasury's short-term credit facility for FNM, FRE and the Federal Home Loan Banks, initially designed to provide a backstop source of liquidity.