Today, the Treasury Department announced not only that it was revising its conservatorship agreement for Fannie and Freddie, but also that it was taking steps to wind them down. A lovely thought, that, but not a realistic prospect any time soon. Regardless of this agreement, the GSEs will still be the bulwark of U.S. mortgage finance – not exactly a wind-down. Treasury could have changed the agreement any time over the past four years and, had it done so, the GSEs now would be a lot more stable and a real wind-down a lot more likely. Better late than never, one supposes, but nowhere near a solution to what continues to ail the GSEs and, with them, us.

First to the key points of the Treasury announcement: a change to the dividends the GSEs must pay and a faster pace for previously-required portfolio reductions. Under the 2008 agreement, Fannie and Freddie were required to pay a ten percent dividend for the preferred stock Treasury took out when it forked over cash to keep the conservatorship afloat. To date, that cash equals almost $190 billion, meaning that the GSEs have to pay an annual dividend to Treasury of about $19 billion. This is more than they ever made in all but one year in their entire existence. As a result, to pay the dividend, the GSEs must take out more stock from Treasury, which hikes the dividend and lead to still more cash draws. Treasury today called this “circular” and so it was from the start.

Instead of chasing Treasury’s tail, the new agreement lets the GSEs pay down the preferred stock taken to date with whatever earnings they can find. As a result, the GSEs will always have zero net worth – if they make money, it goes to Treasury and if they need money, they get enough to bring them back to zero from Uncle Sam. The goal here is to end the downward spiral of even larger draws because, as of year-end, Treasury’s unlimited backstop comes to an end. At New Year’s, the GSEs have $210 billion left to draw on in Treasury’s till – still a lot, but nowhere near enough if these giant enterprises encountered a liquidity shock. The longer the runway, the less chance of a crash, so Treasury has by its revised agreement done what it can when it can to reduce the systemic risk the GSEs could pose.

Nice, as I said. But, does this or the portfolio reduction do didly to the fundamental GSE quandary? No, nor does it make meaningful GSE reform easier or harder – it’s as it was, a complicated proposition that must still balance many competing private-sector needs against conflicting policy goals.

Before the revised Treasury agreement, Fannie and Freddie were zombies in a conservatorship limbo run by a government agency to accomplish public goals within the legal constraints required of private-sector corporations. After the revision, guess what – the GSEs are in the same conservatorship limbo pushed and pulled just as hard between these totally incompatible demands. Now, it will just cost taxpayers a little less up-front because Fannie and Freddie won’t have to borrow from Peter to pay Paul.