Freddie Mac announced Tuesday that the government-controlled company experienced a staggering $475 million loss in Q3 and won’t be paying a dividend to the U.S. Treasury next month.

This comes after it experienced fifteen straight months of profitability, and had paid $96.5 billion in dividends since 2012, far exceeding the $71 billion taxpayer bailout it received in September 2008. Because payments are considered a return on investment, as opposed to repayment for the bailout, the GSEs have no mechanism for exiting conservatorship.

Freddie Mac

The earnings stand in stark contrast to earnings from the same period last year, in which the company netted $2.1 billion, and from the $4.2 billion in netted in Q2 2015.

The news came as a surprise to some given the current strength of the housing market. But Freddie Mac and its oversight agency, FHFA, reiterated Tuesday that the agency’s risk profile is stable and lower earnings are not a result of any uptick in repayment loss. In fact, Freddie Mac has been transferring credit risk away from taxpayers to the private sector, which has the net impact of reducing overall revenues. Losses are further attributed to accounting practices in which the company uses derivatives to hedge against interest rate risk.

“Derivatives create a large source of GAAP earnings instability despite the underlying economics being all about reducing interest-rate exposure of the company to very low levels, which is what we are told to do economically,” explained Freddie Mac CEO Donald Layton. Derivative losses totaled $4.2 billion in Q3, up from $600 million in Q3 of last year. Despite the losses, Layton noted the company still showed “very strong fundamentals.”

Optimists pointed to the company’s $1.3 billion in net worth as reason to believe the company will remain solvent for the foreseeable future.

The foreseeable future, if losses are sustained at the current rate, will only be 2018. Mel Watt, Director of FHFA, noted that the terms of the conservatorship agreement prevent Freddie Mac from recapitalization, and the current capital buffer will decline to zero by 2018. This, combined with volatile interest rates,

“will likely make both enterprises increasingly susceptible to the possibility of quarterly losses that result in draws,” from the Treasury, Watt noted.

Freddie Mac’s earnings loss adds fuel for recap and release

The earnings report added fuel to the fire for advocates pushing for “recap and release” of the GSEs. Since 2012, profits have been swept to the Treasury. Recapitalizing and releasing the GSEs from conservatorship would allow the companies to operate more independently; it would also allow the GSEs to begin paying dividends to its investors, and it would reduce the risk taxpayers collectively face should another bailout be required.

Such poor earnings are all but a nail in the coffin for GSE CEO pay increases that FHFA approved of earlier this year. CEO salaries are currently capped at $600,000 but were set to be lifted to upwards of $4 million until swift Congressional action was taken to roll back the salaries. The Senate has already approved of the rollback; the House was slated to move on it Tuesday until it was bounced off the agenda and rescheduled for two weeks from now. Today’s earnings merely a coincidence, or are they an ominous sign?

“Losses like this combined with multimillion dollar CEO salaries at the GSEs are the warning shots of a return to the pre-crisis model of private gains and public losses that wrecked the economy,” said Rep. Ed Royce (R-Calif.) in a press release Tuesday.

If there’s one thing government, investors and advocates can collectively agree upon, it’s the need for more comprehensive housing finance reform. If Tuesday’s earnings are indicative of earnings to be expected in future quarters, it could serve as the much needed impetus to kick reform in to high gear. Congress is much less likely to sit on its laurels if the U.S. Treasury’s gravy train suddenly grinds to a halt.

Fannie Mae’s earnings are expected to be released this Thursday. Stay tuned.