On Friday, August 17, the United States Treasury Department announced that it is changing the terms of its financial backing for Fannie Mae and Freddie Mac. The new terms will accelerate reducing the holdings of the two agency mortgage companies, and will require the companies to pay the government any quarterly profits they earn. Prior to this new system, Fannie and Freddie were paying a 10% quarterly dividend payment to the U.S. Treasury.
The Treasury also added that Fannie and Freddie's massive mortgage portfolios shall be wound down at an annual rate of 15%, up from the prior rate of ten percent. This will hasten the plan to reduce each agency's portfolio to $250 billion in assets by four years, to 2018. This maneuver should be beneficial for mortgage originators, homebuilders and government debt in the near to mid-term, as it will delay more substantial reform of the two giant government-seized firms. This change in policy is likely at least partially designed to promote China's continued purchasing of U.S. Treasury bonds and agency issued residential mortgage backed securities.
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