Second, the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 warned all Freddie securities investors, including preferred equity investors, that they would “not be interpreted” if they felt that the GSEs would “honour, repay or otherwise guarantee their obligations or liabilities.” The task of cleaning up at least $200 billion for the exit of the conservatory is terrifying, but the real financial hurdle is about double, as the liquidation preference of nearly $200 billion under existing tax bailouts is almost twice as high. Despite recent changes to the PSPA, GSEs must provide most of the capital needed to private investors instead of using the retained profits to contribute to the total contribution. REF Even if the obligations arising from existing agreements are ignored, Such a capital increase on the stock market would overshadow the biggest IPOs in history, such as Alibaba`s $25 billion in 2014, Facebook`s $16 billion in 2012, General Motors` $18.1 billion in 2010 (after bankruptcy in 2009) and Ubers$ 9 billion in 2019. capital required in a share offer. First, a capital increase of $400 billion would significantly dilute the share of existing common shares by more than 95 per cent. Second, unlike typical capital increases, revenues will not be used to invest in the expansion of business activities to increase net income. Instead, the capital increase is intended for the repayment of the liquidation preference and the restoration of the necessary capital buffer. Over the past 30 years, the average annual return on equity for all U.S. banks has been about 12%. To achieve this $400 billion return on new capital would require a combined net income of more than $47 billion, a performance that has only been achieved once in its history. In the five years from 2014 to 2018, Fannie Mae earned $11.2 billion a year and Freddie Mac 7.3 billion. REF Total net income of $18.5 billion represents only an annual return of 4.6 per cent on newly borrowed equity of $400 billion. On September 30, 2019, the Department of Finance and the Federal Housing Finance Agency (FHFA) announced, as curators of Fannie Mae and Freddie Mac, changes to the “Preferred Senior Stock Certificates” to allow Fannie Mae and Freddie Mac to retain profits in excess of the $3 billion in capital reserves authorized by the 2017 correspondence contracts.
Fannie Mae and Freddie Mac are now allowed to maintain capital reserves of $25 billion, or $20 billion. These changes were recommended in the housing reform plan released on September 5, 2019.