In an announcement that is sure to upset every Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) shareholder, the US Treasury will receive a combined $10.2 billion in dividends from the two government sponsored enterprises (GSE) even as the US housing market flattens out, report Tess Stynes and Michael Calia for The Wall Street Journal.

Fannie Mae Freddie Mac Glassman

Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) will pay $5.7 billion in dividends to Treasury next month, bringing total payments to $126.8 billion compared to the $116.1 billion cash infusion that it has received since the government intervened to keep the company solvent. Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) will pay $4.5 billion, bringing total dividends to $86.3 billion compared to the $71.3 billion bailout that it received.

While it’s often said that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) have repaid Treasury, and then some, but the government bailout wasn’t structured as a loan that could be repaid and the dividend payments don’t reduce the government’s stake in the GSEs. Under the original terms of the agreement the Federal government was first in line to get dividends, but this was later amended by Treasury and the Federal Housing Finance Agency (FHFA) so that Treasury do a full income sweep at the expense of other shareholders, a decision that is the subject of multiple lawsuits.

Falling profits partially because the GSEs are winding down

Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) both saw their profits drop from 4Q13 to 1Q14 due to the softening housing market, but ironically the dividend sweeps might be part of the reason for the weak market in the first place. If Treasury and FHFA intended to eventually return Fannie Mae and Freddie Mac to normal operations, they wouldn’t be paying out all of their profits in dividends (either to the government or to private shareholders).Instead, a portion of those profits would be used to recapitalize the GSEs and to keep buying mortgages.

Since Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are buying and securitizing fewer mortgages, the cost of financing is going up and discouraging new home purchases. The dividend sweep is also the reason why Fannie Mae failed a recent stress test, a given since it isn’t being allowed to hang on to capital.