Freddie Mac (FMCC)

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WASHINGTON— Fannie Mae and Freddie Mac will start keeping their earnings under an agreement announced Monday between the Treasury Department and the companies’ federal regulator.

The move suspends a yearslong arrangement in which the mortgage-finance giants handed nearly all of their profits to the Treasury. It also marks an initial major step in allowing the companies to build up capital so they can eventually operate as private companies again.

Under the agreement, the companies are allowed to retain over a year’s worth of profits—$25 billion for Fannie Mae and $20 billion for Freddie Mac, the Treasury and Federal Housing Finance Agency said Monday.

“These modifications are an important step toward implementing Treasury’s recommended reforms that will define a limited role for the Federal Government in the housing finance system and protect taxpayers against future bailouts,” Treasury Secretary Steven Mnuchin said in a statement.