The Treasury Department is preparing to revamp the terms of its nearly four-year-old financial backing of Fannie Mae and Freddie Mac in a bid to allay investor concerns that the companies could one day exhaust their federal lifelines, the Wall Street Journal reported today. Currently, the government-controlled mortgage-finance companies make 10 percent dividend payments to the Treasury every quarter, an arrangement that has forced them to borrow money from the government during periods where they do not turn a large profit. Under the new arrangement between Treasury and the companies' federal regulator, all the firms' quarterly profits would be turned over to the government as a dividend payment; the government would not require such payments in periods when the firms are unprofitable. The revised terms would also accelerate the reduction of the firms' mortgage portfolios. The firms will have to shrink those portfolios by 15 percent annually beginning next year—a change from the currently required 10 percent annual reduction. That means the portfolios, which can be no larger than $650 billion for each firm at the end of the year, will fall to the final cap of $250 billion by 2018, four years earlier than previously scheduled.
