MBS investors received an early present on Christmas Eve when the US Treasury announced an amendment to the GSE Preferred Stock Purchase Program (PSPA). Although the announcement was greatly appreciated, it was also widely expected and market reaction was muted. There are two main elements to the amendment. First, prior to the announcement, under the PSPAs the retained portfolios of each firm were capped at $900 billion, and each firm was required to reduce the size of their portfolios by 10% per year beginning in 2010. Now, the requirement to reduce their portfolios by 10% per year applies to the portfolio caps rather than to the actual size of the portfolios. Fannie and Freddie’s portfolios each total approximately $770 billion, so this change affords each firm greater flexibility and time to meet the portfolio reduction requirement. Second, prior to the announcement, under the PSPAs the Treasury had committed to provide up to $200 billion in funding to each institution in order for them to maintain positive net worth. Although neither of the two Agencies is expected to need more than the original commitment of $200 billion per institution (total funding to-date provided under these agreements had been just $51 billion to Freddie Mac and $60 billion to Fannie Mae), now the cap on Treasury’s funding commitment for each company essentially has been raised to $200 billion plus all cumulative losses incurred over the next three years.