Fannie Mae, Freddie Mac Could Soon Put ‘Paid’ To Their $187B Bailout

Fannie Mae, Freddie Mac Could Soon Put ‘Paid’ To Their $187B Bailout

Fannie Mae

Photo by NCinDC

The change of fortunes in the housing market have led to solid profits at mortgage finance companies Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).

But all of these profits flow into the coffers of the US Treasury under a federal diktat that requires the two companies to fork over profits as dividends on the government’s 80% ownership in the two companies.

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Fannie Mae and Freddie Mac: Bailout a blip in the rear view mirror

In fact, with its dividend payment of $30.4B last December, Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) returned all of the $71.3B it received as a bailout from the government and paid over an additional $9B. Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) paid $8.6B, bringing its cumulative tally of the amount returned to taxpayers to about $113.9B, and within handshaking distance of the total bailout of $116.1B it received.

Fannie Mae will most likely repay the piffling balance amount of $2B plus change this quarter.

A lucrative dividend stream for the government

With the bailout repaid, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) will continue to make dividend payments to the Treasury, provided they are profitable, becoming veritable cash cows for the government.

Last month, the country reported a record December budget surplus of $53.2B, aided by the payments from the GSEs and higher payroll taxes.

Other contenders

But now that taxpayers have been made whole, attention needs to be paid to the holders of the common and preferred shares in Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA), who are clamoring for equitable treatment by the government in its reform involving the two housing mortgage companies.

More particularly, they would like to participate in the companies’ profits once taxpayers are paid in full.

Consumer activist and shareholder Ralph Nader held a round table discussion in Washington to draw attention to the need to help shareholders retrieve their investments in the GSEs. Current political thinking is weighing the winding up of the companies, though currently, there appears to be a political logjam on the issue.

“Housing reform will have an impact not just on shareholders, but on industry stakeholders and the broader economy,” Nader said at the discussion, which was organized as a part of his campaign with Shareholder Respect, a group created to empower Fannie and Freddie shareholders.

Hedge funds on the warpath

Hedge funds such as Bruce Berkowitz’ Fairholme Fund and Perry Capital are embroiled in litigation against the government and contend that its appropriation of all of Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) profits is unjustified.

Theodore Olson of Gibson, Dunn & Crutcher LLP, which represents Perry Capital LLC, said at a conference last week that the Treasury “has effectively nationalized the companies and ensured that they will never return to private ownership” using steps that are “plainly unlawful.”

Non-profits want theirs, too

Low-income housing groups led by the Right To The City alliance have claimed in a lawsuit that the government should honor its commitment in the original bailout to set aside a small portion of the profits to be made by Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) for funding a trust that will provide affordable housing to low-income and homeless persons.

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Saul Griffith is an investor in stocks, commodities and forex, writing under a pen name. Saul has top accounting qualifications and extensive experience in industry and the financial markets. He also has an abiding interest in breaking news that could be a harbinger of new trends and give insight into an instrument’s potential for providing value, growth or yield.
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  1. It’s been five years since the financial crisis and no banks have moved in on the secondary mortgage market. Why is anyone even talking about housing reform anymore? When the fourth quarter earnings are out next week Fannie Mae will have officially paid back it’s ‘loan’ from the Treasury. That $187 billion is considered by many to be a gross overestimation, realistically it’s been paid already and it should be obvious to anyone now these were paper losses promptly paid back. The bailout was unnecessary. These companies are powerhouses. Eliminating them or otherwise compromising them will hurt America. Let’s not forget that the housing crisis was due to congressional policies aimed at reducing underwriting standards, banks capitalizing on the opportunity to push toxic loans, and new home owners with unrealistic expectations. The simplest and best solution is to release Fannie Mae and Freddie Mac from conservatorship and monitor them. Am I the only one with common sense or do other people agree?

  2. I agree. They should return the Share Holder money now. The Government and Banks got their respective share and now are profitable, It’s time for government to return the Share Holder share.

  3. FHFA needs to set lose its slaves. they will have paid their debt, more than GM did, and they are not the property of the US govt. they are private companies as the courts over the last 5 years have proven time and time again. And as private companies they are being looted by the FHFA and treasury. How would we all feel when apple or walmart are next for the looting and corporate takeover? Are we so against the investors in america today that we see them as evil? well Im an investor and Im not evil and Im just trying to earn money so I can live my life. Isnt this the american dream? I pay my taxes and I work hard. I am an american. I am an investor. I am a TAXPAYER. Let F&F go from the slave master. Its obvious they are not insolvent. Its obvious the ONLY reason they were close to it was the BIG BANKS defrauded them of 400BILLION dollars. Take a look at who is paying who for the fraud. Thats right! the big banks! WHY? because they committed fraud on Fannie and freddie!!! the bankers should be locked up for their scheme on the american people and the tax payer money needed for the BANKS to save them!!

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