Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are well on their way to repaying U.S. taxpayers, who will probably earn a fair profit on the bailouts given to the two mortgage finance firms. The recent housing recovery has made both firms highly profitable, and for the time being those profits are being funneled into Treasury, writes Chris Isidore at CNN Money (who also does some of the math).
Fannie Mae and Freddie Mac received a combined $187 billion bailout in September 2008 as part of the government’s overall response to the fiscal crisis, with Fannie receiving $116 billion and Freddie the other $71 billion. At the time most people thought it was unlikely that either would manage to pay back the loans, and the move has been harshly criticized by people on both sides of the aisle.
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Fannie Mae, Freddie Mac may start producing profits next year
Fannie Mae just paid back an additional $10 billion, bringing its total repayments up to $105 billion, and Freddie Mac paid down another $5 billion on its Treasury debt. Freddie Mac still owes $30 billion, but it has $29 billion coming in by the end of the year, $25 billion of which will go to the Treasury. At this rate, taxpayers can expect to see an outright profit sometime next year, not counting the beneficial effects these companies have had on the economy.
Neither company issues mortgages directly, instead they purchase mortgages from banks and other lending institutions and then resell them as guaranteed bundles. When the mortgages pay off, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) turn a profit, when too many of them go into default the firms take a loss. With so many foreclosures and defaults in 2008 the companies would have gone under without government assistance.
Fannie Mae bailout compared to auto industry turn-around
Because of their unique status, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) were the only places people could get financing for home loans during the crisis (again, indirectly), and successive administrations decided that the complete collapse of the housing market was more than the country could bear.
For bailout supporters, this case is similar to the U.S. auto industry bailouts in 2008, which was met with harsh criticism from essentially the same groups. U.S. auto loans have been paid back on schedule (though there is still plenty of outstanding debt), and there is a good chance that U.S. taxpayers will see a net profit in the long run, in addition to the jobs saved by the bailout.