As anticipated, FHFA and Treasury today announced the quarter-end agreement allowing Fannie and Freddie to raise capital reserves to $25 billion and $20 billion respectively.  As we noted last week, the GSEs need a larger reserve with which to handle anticipated retained-earnings hits due to CECL in the first quarter.  The White House also needs a bigger buffer to ensure that these capital reductions or any others due to earnings stress don’t result in a Treasury draw as the 2020 election heats up.

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