This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

'Wind Down' of Fannie, Freddie: 'Positive for Housing'?




By Diana Olick, CNBC Real Estate Reporter

NEW YORK (CNBC) -- As part of its plan to "wind down" mortgage giants Fannie Mae and Freddie Mac, the U.S. Treasury Department is changing the terms of the capital support agreement that kept the two afloat in the first place.

Fannie Mae and Freddie Mac were put under government conservatorship in 2008, in the wake of the housing and mortgage crash.

"With [Friday's] announcement, we are taking the next step toward responsibly winding down Fannie Mae and Freddie Mac, while continuing to support the necessary process of repair and recovery in the housing market," said Michael Stegman, Counselor to the Secretary of the Treasury for Housing Finance Policy in a press release.

More from CNBC
US Home Builders Begin to See Credit Thaw
Dear Mr. Zuckerberg: Please Ignore Your Critics
The Top 10 Ways Sharks and Bankers Are Alike

Treasury officials announced they will now require the two to reduce their investment portfolios at a faster rate, 15% a year instead of the previous 10%.

The Treasury is also replacing the 10% dividend payments the two make to Treasury on its preferred stock investments with a "quarterly sweep of every dollar of profit that each firm earns going forward." Fannie Mae and Freddie Mac only became profitable again this year, the first time since the crash of the market.

"We see this as a positive for housing, as it ensures that Fannie and Freddie will remain in business," writes Jaret Seiberg of Guggenheim Partners. "Absent Fannie and Freddie, we believe housing finance will become more expensive and less available."

Seiberg also notes that this is a positive for private mortgage insurers because Fannie Mae and Freddie Mac require such insurance when a borrower puts down less than 20% in equity on a loan. Without Fannie and Freddie, the private insurers would lose a lot of business.

The announcement, however, does not really speak to the future of the GSEs, rather just rids them of a counterproductive debt repayment situation. With the former 10% dividend requirement, Fannie and Freddie, up until the past two quarters, were actually having to borrow more from the Treasury in order to pay the Treasury the dividend.

In other words, it was a circular draw that didn't make a lot of fiscal sense. Now that they are profitable, they will instead pay the profits.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,493.37 -69.93 -0.42%
S&P 500 1,925.15 -5.52 -0.29%
NASDAQ 4,352.6390 -17.1340 -0.39%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs