The Trump administration is poised to unveil last-minute changes to Fannie Mae and Freddie Mac that would allow the mortgage giants to retain significantly more capital, while leaving many of the thorniest issues on releasing the companies from federal control to President-elect Joe Biden, said four people familiar with the matter.

The revisions -- expected to be announced as soon as Thursday -- would modify the contracts that govern taxpayers’ backstopping of Fannie and Freddie. They fall far short of freeing the companies from their government conservatorships, something Treasury Secretary Steven Mnuchin vowed to accomplish after President Donald Trump’s 2016 election win.

Shares of both companies fell on the news. Fannie declined 4.4% to $1.97 at 10 a.m. in New York. Freddie dropped 5% to $1.92.

Treasury Department officials have already started briefing lawmakers on the tweaks, which are the result of an agreement between Mnuchin’s agency and the Federal Housing Finance Agency -- Fannie and Freddie’s regulator. While the revisions have been presented as if a deal has been finalized, they could still change before they are publicly released.

The actions will lock-in several policies the companies are already subject to under FHFA Director Mark Calabria, said the people who asked not to be named to discuss the matter before the changes are announced. They include ensuring big lenders don’t get advantages unavailable to smaller ones when doing business with Fannie and Freddie and limiting the amount of higher-risk mortgages that the companies can guarantee.

Most significant, Fannie and Freddie won’t have to pay their profits to the government until they have much bigger capital buffers to protect the companies against losses. Right now, Fannie and Freddie combined can’t hold more than $45 billion in capital, after which they must pay their entire net worths to the U.S. Treasury.

Controversial Policy
People briefed on the plans said it wasn’t clear how much capital the companies will be permitted to keep but said the changes were framed as an end to the so-called net-worth sweep, a controversial policy implemented during the Obama administration that requires they send their earnings to the Treasury.

However, Treasury opposes reducing the government’s ownership stake in Fannie and Freddie, a longtime goal of the companies’ private shareholders. Whether to modify the Treasury’s senior preferred stake is under consideration at the White House, said one person familiar with the matter. If Treasury’s position holds, Biden will be guaranteed a strong say in the companies’ futures. Unlike the current White House, the incoming administration is seen to be in no hurry to re-privatize the companies, the people said.

A Treasury spokeswoman declined to comment, while an FHFA spokesman had no immediate comment.

Fannie and Freddie don’t make mortgages. They buy them from lenders, wrap them into securities and guarantee to investors the repayment of principal and interest. The government took them over in 2008, as billions in loans soured during the financial crisis, eventually injecting them with $187.5 billion in bailout money.

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