Housing & Government
 

Sponsored Enterprises
 

FY 2015
 

President’s Budget
 

GSEs -- 1 
 

Table of Contents
 

Section 1 – Purpose ....................................................................................................................... 3

1A – Mission Statement .............................................................................................................. 3

1.1– Program Account Summary................................................................................................ 3

1.2– Financing Account Summary ............................................................................................. 4

1.3 – Mandatory Receipts Summary........................................................................................... 4

1B – Vision, Priorities and Context ............................................................................................ 4 

1C - Credit Reform Account Descriptions 8 

Section 2 – Budget Adjustments and Appropriation Language ............................................... 9

2A– Budget Increases and Decreases Description...................................................................... 9

2B – Appropriations Language and Explanation of Changes..................................................... 9

2C – Legislative Proposals.......................................................................................................... 9

Section 3 – Budget and Performance Plan ............................................................................... 10

3A – Senior Preferred Stock Purchase Agreements (PSPA) .................................................... 10

3.1.1 – Senior PSPA Budget and Performance Report and Plan .............................................. 10

3B – New Issue Bond Program................................................................................................. 10

3.1.2 – New Issue Bond Program Budget and Performance Report and Plan .......................... 11

3C – Temporary Credit and Liquidity Program (TCLP) ......................................................... 11

3.1.3 – TCLP Budget and Performance Report and Plan ......................................................... 12

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 -

Actual Estimated Estimated $ Change % Change 

AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT 

Obligations 

Senior Preferred Stock Purchase 

Agreements Account 

GSE MBS Purchase Program Account 

0 

591 

0 

8 

0 

9 

0 

1 

0% 

12.50% 

Total Obligations $591 $8 $9 1 12.50% 

Budget Authority 

Senior Preferred Stock Purchase 

Agreements Account 45,535 0 0 0 0% 

GSE MBS Purchase Program Account 594 8 9 1 12.50% 

Total Budget Authority $46,129 $8 $9 1 12.50$ 

Outlays 

Senior Preferred Stock Purchase 

Agreements Account 0 0 0 0 0% 

GSE MBS Purchase Program Account 545 61 9 (52) -85.25% 

Total Outlays $545 $61 $9 (52) 85.25% 

1.1 – Program Account Summary 

Dollars in Millions 

FY 2013 FY 2014 FY 2015 FY 2013 to FY 2015 

Section 1 – Purpose 

1A – Mission Statement 

To provide stability to financial markets and promote mortgage affordability while also 

protecting the taxpayer, Treasury implemented four programs with respect to two Government 

Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, as well as the Federal Home Loan 

Banks (FHLBs). The Senior Preferred Stock Purchase Agreements (PSPAs) with Fannie Mae 

and Freddie Mac are currently active, while Treasury completed the orderly disposition of the 

Mortgage-Backed Securities (MBS) Purchase Program in March 2012. 

In addition to these programs, Treasury has purchased securities of Fannie Mae and Freddie Mac 

backed by new housing bonds issued by the Housing Finance Agencies (HFAs), through the 

New Issue Bond Program (NIBP). Treasury also purchased participation interests in temporary 

credit and liquidity facilities which are obligations of Fannie Mae and Freddie Mac as part of the 

Temporary Credit and Liquidity Program (TCLP) to provide backstop liquidity and credit for 

state and local HFAs. Together, the NIBP and the TCLP comprise the Housing Finance 

Agencies Initiative (HFA Initiative). 

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FY 2013 FY 2014 FY 2015 

Actual Estimated Estimated FY 2014 to FY 2015 

Change 

FY 2014 to FY 2015 

% Change 

AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT 

GSE MBS Direct Loans 

Obligations 760 0 0 0 0.00% 

Collections 55 0 0 0 0.00% 

Financing Authority (net) 0 0 0 0 0.00% 

Financing Disbursements (net) 705 0 0 0 0.00% 

State HFA NIPB & TCLP 

Obligations 431 402 307 (95) -23.63% 

Collections 5,229 934 910 (24) -2.57% 

Financing Authority (net) (4,450) (532) (603) (71) 13.35% 

Financing Disbursements (net) (4,798) (532) (603) (71) 13.35% 

1.3 – Mandatory Receipts Summary 

Dollars in Millions 

FY 2013 FY 2014 FY 2015 FY 2014 to FY 2015 

Actual Estimated Estimated $ Change % 

Change 

AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT 

Senior Preferred Dividend Payments
 

from Fannie/Freddie
 

Receipts	 95,727 68,782 18,958 -49,824 -72.44% 

Additional G Fee Collected Per
 

Temporary Payroll Tax Cut Continuation Act
 

Receipts	 946 1,876 2,301 425 22.65% 

1.2 – Financing Account Summary

Dollars in Millions 

1B – Vision, Priorities and Context 

FY 2015 Priorities: 

•	 To provide stability to financial markets. 

•	 To prevent disruptions to the availability of mortgage credit for American homebuyers. 

•	 To maintain investor confidence in the GSEs and in state and local HFAs. 

•	 To restore the capacity of state and local HFAs to provide affordable housing resources to 

working families at the state and local level. 

Senior Preferred Stock Purchase Agreements (PSPAs) 

Section 1117 of the Housing and Economic Recovery Act of 2008 (HERA) granted temporary 

authority for the Treasury to purchase any obligations and other securities issued by Fannie Mae, 

Freddie Mac, and any Federal Home Loan Bank on such terms and conditions and amounts as 

the Treasury may determine. On September 7, 2008, the Secretary of the Treasury made the 

determination that the Treasury’s exercise of its purchase authority under HERA was necessary 

to provide stability to the financial markets, prevent disruptions in the availability of mortgage 

finance, and protect taxpayers. 

The PSPAs were created to instill confidence in investors that Fannie Mae and Freddie Mac 

would remain viable entities, which is critical to the functioning of the housing and mortgage 

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markets. Investors purchased securities issued or guaranteed by Fannie Mae and Freddie Mac in 

part because their Congressional charters created a perception of government backing. 

Vision: The function of the PSPAs is to enhance market stability by providing holders of Fannie 

Mae and Freddie Mac securities with additional confidence that the GSEs will remain viable 

entities. This leads to increased mortgage affordability. This commitment is also designed to 

eliminate any mandatory triggering of receivership under HERA. To this end, the PSPAs are an 

effective means of averting systemic risk while at the same time protecting the taxpayer. 

Priorities: Market stability is central to the mission of the Treasury. In this regard, the following 

priorities have been identified for mission success: 

• To provide stability to the GSE securities market. 

• To maintain the viability of the GSEs. 

Program History: During FY 2008, the Department of the Treasury entered into the PSPAs 

with Fannie Mae and Freddie Mac. The PSPAs were indefinite in duration and had a funding 

commitment limit of $100 billion each. These agreements were amended in May 2009 to have a 

funding commitment limit of $200 billion each, and further amended in December 2009, to 

replace the fixed-dollar amount funding commitment limit with a formulaic limit that would 

automatically adjust upward quarterly by the amount of any cumulative reduction in net worth 

until December 2012. Based on the financial results reported by Fannie Mae and Freddie Mac as 

of December 31, 2012 and under the terms of the PSPAs, the cumulative funding commitment 

cap for Fannie Mae was set at $233.7 billion and the cumulative funding commitment cap for 

Freddie Mac was set at $211.8 billion. In exchange for entering into these agreements with these 

two GSEs, Treasury immediately received $1 billion of senior preferred stock in each GSE and 

warrants for the purchase of common stock of each GSE representing 79.9 percent of the 

common stock of each GSE on a fully-diluted basis at a nominal price. No taxpayer money was 

spent to receive the senior preferred stock. 

The PSPAs were further amended in August 2012. The changes included: replacing the fixed 10 

percent dividend with a quarterly payment based on the net worth of the GSEs; increasing the 

rate at which the GSEs must reduce their retained investment portfolio balance to 15 percent 

instead of 10 percent per year; and requiring each GSE to submit to Treasury an annual risk 

management plan that details their respective strategies for reducing their enterprise-wide risk 

profile. The change to the dividend payment structure eliminated the need for the GSEs to make 

PSPA draws from Treasury after making dividend payments to Treasury. Since the original 

dividend provision threatened to erode the amount of the Treasury commitment available to the 

GSEs, this amendment helps to maintain the stability of the housing market by preserving the 

continued solvency of the GSEs. 

Program Outlook: Under the PSPAs, Treasury helped maintain the viability of the GSEs with 

its $187.5 billion investment. Treasury forecasts that it will not make any payments under the 

PSPAs in FY 2014. Treasury forecasts that it will receive approximately $68.8billion in 

dividends in FY 2014. 

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Housing Finance Agencies Initiative 

State and local Housing Finance Agencies (collectively, the “HFAs”) are agencies or authorities 

created by state law that are charged with helping persons and families of low or moderate 

income attain affordable housing. HFAs serve numerous functions to this end including 

providing mortgages, financing affordable rental housing, providing homeownership education, 

and allocating low income housing tax credits. 

HFAs have historically played a central role in providing a safe, sustainable path to 

homeownership. Through the course of the housing downturn, the HFAs experienced a number 

of challenges including a lack of liquidity support for existing variable rate bonds, losses on 

mortgages, and downgrades of re-insurance providers. Historically, HFAs have funded their 

activities by issuing tax-exempt mortgage revenue bonds and keeping the associated mortgage 

collateral produced on HFA balance sheets. The bond performance of HFAs has generally been 

strong. However, due to the uncertainties and strain throughout the housing sector during the 

financial crisis and the widening of spreads in the tax-exempt market, HFAs have experienced 

challenges in issuing new bonds to fund new mortgage lending. 

To provide stability to the financial markets and promote mortgage affordability while at the 

same time protecting the taxpayer, Treasury implemented two programs in December 2009 as 

part of the Housing Finance Agencies Initiative – the New Issue Bond Purchase Program (NIBP) 

and the Temporary Credit and Liquidity Program (TCLP). 

New Issue Bond Program 

The NIBP has provided temporary financing for HFAs to issue new housing bonds. Treasury 

purchased securities of Fannie Mae and Freddie Mac backed by HFA housing bonds, with the 

funding placed in escrow to be converted into new mortgages prior to the end of calendar year 

2012. This allowed the HFAs to issue new housing bonds consistent with what they would 

ordinarily have been able to issue with the allocations provided them by Congress absent the 

challenges in housing and related markets. The program supported over one hundred thirty 

thousand new mortgages to low- and moderate-income homebuyers, as well as forty thousand 

new rental housing units for working families. 

Vision: The NIBP has helped provide stability to financial markets and prevented disruptions in 

mortgage finance availability by providing a temporary supplemental market for newly issued 

HFA housing bonds. The NIBP has enabled HFAs to keep their lending programs active while 

they adapt to changing market conditions. The program supports the availability of mortgage 

credit and affordable rental properties for low- and moderate-income Americans. Facilitating 

supply and demand in the housing markets helps to stabilize them, thereby reducing losses to the 

housing GSEs. 

Priorities: 

•	 To help provide stability to the housing market. 

•	 To provide funding to HFAs so that they continue to provide affordable mortgage credit. 

•	 To promote availability and affordability of housing resources for low- and moderate-income 

Americans. 

•	 To protect taxpayers. 

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Program History: In December 2009, the Department of the Treasury entered into a 

Memorandum of Understanding with Fannie Mae, Freddie Mac and the Federal Housing Finance 

Agency (FHFA) outlining the obligations of each party with regard to the HFA Initiative 

transactions. Under the terms of the NIBP, Treasury purchased Fannie Mae and Freddie Mac 

securities backed by housing bonds issued by HFAs, with the funding placed in escrow pending 

the origination of new mortgages. Use of escrowed proceeds to finance new mortgages 

originally had to be completed by December 31, 2010; however continued disruptions in the 

HFA market led to extensions. After two one-year extensions, HFAs had a deadline of December 

31, 2012 to use NIBP funds. 

Program Outlook: Treasury purchased approximately $15.3 billion in securities under its 

authority for this program in FY 2010. As of the December 31, 2012 deadline, HFAs had used 

$13.3 billion to finance single and multi-family mortgages, and the remainder had been returned 

to Treasury. 

Temporary Credit and Liquidity Program 

Fannie Mae and Freddie Mac administer the TCLP for HFAs to help relieve financial strains 

during the financial crisis. Treasury purchased a participation interest in the Fannie Mae and 

Freddie Mac Temporary Credit and Liquidity Facilities (TCLFs) provided to HFAs under the 

TCLP, thus providing a credit and liquidity backstop. These facilities have helped the HFAs 

maintain their financial health and preserve the viability of the HFA infrastructure so that that 

HFAs can continue their Congressionally supported role in helping provide affordable mortgage 

credit to low and moderate income Americans, as well as continue their other important activities 

in communities. 

Vision: The TCLP has helped provide stability to financial markets and prevented disruptions in 

mortgage finance availability by helping HFAs relieve current financial strains. The TCLP has 

supported the HFAs through the economic downturn and given them time to develop and 

implement more sustainable financing structures that preserve their critical role in extending 

mortgage credit to low and moderate income Americans. 

Priorities: 

•	 To help provide stability to the housing market. 

•	 To provide funding to HFAs so that they can continue to provide affordable mortgage credit. 

To promote availability and affordability of housing resources for low- and moderate-income 

Americans. 

•	 To protect taxpayers. 

Program History: In December 2009, the Department of the Treasury entered into a 

Memorandum of Understanding with Fannie Mae, Freddie Mac, and FHFA outlining the 

obligations of each party with regard to the HFA Initiative transactions. Under the terms of the 

TCLP, Treasury purchased participation interests in Fannie Mae and Freddie Mac liquidity 

facilities available to support outstanding housing bonds issued by HFAs. At the time of 

execution, $8.2 billion had been allocated to HFAs through the TCLP to use the credit and 

liquidity facilities. 

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Program Outlook: Treasury incurred approximately $8.2 billion in obligations in FY 2010 that 

were to remain open to the end of calendar year 2012. Due to continued strain on the market for 

HFA liquidity facilities, Treasury granted a three-year extension of the TCLP to the end of 

calendar year 2015 for six HFAs, which was conditioned on Treasury’s approval of HFA plans 

to reduce balances of their bonds covered by TCLP during the extension period. To date there 

have been no draw requests or disbursements from the TCLP, and since the extension of the 

TCLP, two additional HFAs have exited the program, leaving four participants. Prior to the 

expiration of the TCLP, Treasury’s obligation will continue to diminish over time as HFAs 

redeem the bonds supported by the program or otherwise reduce their need for Treasury’s 

liquidity support. As of December 31, 2013, the remaining balance of TCLP backed bonds had 

decreased to $1.5 billion. 

1C - Credit Reform Account Descriptions 

GSE Mortgage-Backed Securities Purchase Program Account: The GSE Mortgage-Backed 

Securities Purchase Program Account records the subsidy costs associated with the GSE MBS 

and State HFA purchase programs, which are treated as direct loans for budget execution. The 

subsidy amounts are estimated on a present value basis. 

GSE Mortgage-Backed Securities Purchase Program Direct Loan Financing Account: As 

required by the Federal Credit Reform Act of 1990, this non-budgetary account records all cash 

flows to and from the Government resulting from GSE MBS Purchase Program purchases. 

The amounts in the account are a means of financing and are not included in the budget totals. 

HFA Financing Account: As required by the Federal Credit Reform Act of 1990, this nonbudgetary account records all cash flows to and from the Government resulting from the 

Treasury state HFA programs. The amounts in the account are a means of financing and are not 

included in the budget totals. 

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Section 2 – Budget Adjustments and Appropriation Language 

2A- Budget Increases and Decreases Description 

Not applicable for the Housing Government Sponsored Enterprises. 

2B – Appropriations Language and Explanation of Changes 

The Housing Government Sponsored Enterprise Programs and the Housing Finance Agencies 

Initiative Programs do not receive any discretionary appropriation authority from the Congress. 

Therefore, no appropriations language is proposed. 

2C – Legislative Proposals 

There are no current proposals for amending the enacting legislation. 

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Section 3 – Budget and Performance Plan 

3A – Senior Preferred Stock Purchase Agreements (PSPAs) (No funding): 

The PSPAs instill confidence in investors that Fannie Mae and Freddie Mac will remain viable, 

solvent entities critical to the functioning of the housing and mortgage markets. Treasury 

entered into a PSPA with each GSE to enable each enterprise to maintain a positive net worth. 

The PSPAs enhance market stability by providing additional confidence that the GSEs would 

remain solvent to holders of Fannie Mae and Freddie Mac securities, which, in turn, leads to 

increased mortgage affordability. Treasury’s commitment through the PSPAs is also designed to 

prevent triggering mandatory receivership under HERA. To this end, the PSPAs are an effective 

means of averting systemic risk while at the same time protecting the taxpayer’s investment of 

$187.5 billion. 

In exchange for entering into these agreements with the GSEs, Treasury received $1 billion of 

senior preferred stock in each GSE and warrants for the purchase of common stock of each GSE 

representing 79.9 percent of the common stock of each GSE on a fully-diluted basis at a nominal 

price. The GSEs agreed to pay a dividend to Treasury equal to 10 percent per year of the total 

amount of funds that Treasury had provided to the GSEs (plus $1 billion for each GSE). 

The dividend provision of each PSPA was amended in August 2012 to support the continued 

solvency of the GSEs. The amendments further supported the continued flow of mortgage credit 

and protected the interests of taxpayers. This amendment replaced the fixed 10 percent dividend 

with a quarterly dividend (if any) based on the positive net worth of the GSEs. 

3.1.1 – Senior PSPA Budget and Performance Report and Plan 

Description of Performance: 

To ensure the stability of the GSEs, the GSEs make PSPA draws from Treasury at the request of 

FHFA as necessary for each GSE to maintain a positive net worth. Under the PSPAs, Treasury 

has helped to ensure the viability and solvency of the GSEs by providing $187.5 billion of 

investment to the GSEs. Through December 31, 2013, the GSEs have paid $185.2 billion in 

dividend payments to Treasury. 

3B – New Issue Bond Program (No funding): 

The function of the NIBP was to help provide stability to financial markets and prevent 

disruptions in mortgage finance availability by providing a temporary supplemental market for 

newly issued HFA housing bonds. By temporarily supplementing private demand for HFA 

production, the NIBP enables HFAs to keep their lending programs active while they adapt to 

changing market conditions. The NIBP supports the availability of mortgage credit and 

affordable rental properties for low and moderate income Americans. 

Program sized to meet demand. HFAs submitted detailed program participation requests to 

Treasury. In order to scale back the NIBP requests to an acceptable level that could be 

recommended for adoption, a methodology was developed and applied to arrive at final 

allocation recommendations under the program for HFAs. The allocation methodology was 

based primarily on the 2008 HERA allocations to HFAs and historical HFA issuance. 

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Support for both single-family and multi-family bonds. HFAs were able to request that a 

portion or all of their NIBP allocation be used to issue single or multi-family bonds. The amount 

of multi-family bond issuance was subject to a cap at the program level. 

Protecting Taxpayers. HFAs pay Fannie Mae, Freddie Mac and Treasury an amount intended to 

cover both the cost of financing the newly issued bonds as well as a fee designed to cover risk 

posed by the HFA. Generally speaking, the interest rate on the bond after release from escrow 

was set to cover Treasury’s cost of financing (set at a market-based index rate) plus the 

additional fee designed to offset the credit risk to the taxpayer. 

3.1.2 – New Issue Bond Program Budget and Performance Report and Plan 

Description of Performance: 

Treasury continues to monitor the housing markets as well as other indicators which have an 

impact on the HFAs. After two one-year extensions, HFAs had a deadline of December 31, 2012 

to use NIBP funds. 

3C – Temporary Credit and Liquidity Program (No funding): 

The function of the TCLP is to help relieve financial strains for HFAs. The TCLP provides 

HFAs with temporary credit and liquidity facilities to preserve the viability of the HFA 

infrastructure. This allows HFAs to continue their Congressionally-supported role in helping 

provide affordable mortgage credit to low and moderate-income Americans, and other important 

activities in communities. 

Reducing costs of maintaining existing financing for HFAs. Through Fannie Mae and Freddie 

Mac, the TCLP provides replacement credit and liquidity facilities to HFAs that help reduce the 

costs of maintaining existing financing for the HFAs. Using HERA authority, Treasury 

purchased a participation interest in Fannie Mae and Freddie Mac temporary credit and liquidity 

facilities for the HFAs, and thereby Treasury backstops the replacement liquidity. 

Program sized to meet demand. HFAs submitted detailed program participation requests to 

Treasury for the TCLP. No allocation process was required because requests came in at a total 

below the program cap. 

Protecting Taxpayers. The HFAs pay Fannie Mae, Freddie Mac and Treasury a fee designed to 

cover risk posed by the HFA. Additionally the program extension required participating HFAs to 

submit a plan for Treasury’s approval that demonstrated how each HFA would reduce risk borne 

by the taxpayer under the program. 

Temporary solution, with incentives for HFAs to quickly transition back to market financing. 

The fee for HFAs to use the TCLP increases over time to encourage the HFAs to transition to 

private market financing alternatives as quickly as possible. This process was accelerated by the 

required submission and approval of plans from the HFAs, which demonstrated how they will 

exit the program. 

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Terms designed to facilitate sustainable business models for housing agencies. The liquidity 

facilities under the TCLP program are only available for outstanding bonds. 

3.1.3 – TCLP Budget and Performance Report and Plan 

Description of Performance: 

Treasury continues to monitor the housing markets as well as other factors affecting HFAs. 

During FY 2012 and FY 2013, Treasury granted three-year extensions to the end of calendar 

year 2015 to six HFAs, which were conditioned on Treasury’s approval of plans to reduce 

balances of HFA bonds covered by TCLP during the extension period. Continued market 

surveillance and monitoring of participating HFAs will take place in FY 2015. 

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