Feds alter Fannie, Freddie bailouts

WASHINGTON – The government is changing the terms of its bailout agreement with Fannie Mae and Freddie Mac in a way that will shrink the holdings of the two mortgage giants more quickly and will require payment to the government of all quarterly profits the companies earn.

The Treasury Department announced the changes Friday in an effort to deal with concerns that the companies could at some point exhaust the federal support they were guaranteed when they were taken over by the government in September 2008 during the financial crisis.

The two firms would have to turn over all profits they earn every quarter. They would also be required to accelerate the reduction of their mortgage holdings to hit a cap of $250 billion by 2018, four years earlier than planned.

Under the new arrangement, the firms’ portfolios can be no larger than $650 billion each at the end of this year.

The Obama administration unveiled a plan last year to slowly dissolve Fannie and Freddie, with the goal of shrinking the government’s role in the mortgage system. The proposal would remake decades of federal policy aimed at supporting Americans’ ability to buy homes and could make home loans more expensive. However, Congress hasn’t yet decided how far the government’s role in mortgages should be reduced.

“With today’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 of the housing market,” said Michael Stegman, who serves as Treasury Secretary Timothy Geithner’s counselor on housing policy.

Industry groups including the American Bankers Association and the Mortgage Bankers Association were generally supportive of the administration’s action.