Fannie Mae, Freddie Mac Dividend Payments To Surpass Government Aid

By Mani
Updated on

Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) proposes to pay $7.2 billion as a profit-related dividend to the U.S. Treasury, turning the mortgage bailout into a profitable venture for taxpayers.

Mortgage giant Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) clocked an annual profit of $84 billion in 2013 thanks to strong home-price gains in housing markets across the U.S.

Fannie Mae, Freddie Mac crossed $187 billion mark

Last December, Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) returned all of the $71.3 billion it received as a bailout from the government and paid over an additional $9 billion. Fannie Mae too paid $8.6 billion bringing its cumulative tally of the amount returned to taxpayers to about $113.9 billion, and within handshaking distance of the total bailout of $116.1 billion it received. This made Fannie Mae to likely repay the piffling balance amount of $2 billion plus during this quarter.

Symbolic milestone crossed

Thanks to strong revenue reported for the quarter ended December, Fannie Mae said it would pay $7.2 billion to the U.S. Treasury next month. The proposed payment means Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) will do what many considered impossible just two years ago. They will have paid more in dividends to the government – around $192.5 billion – than the $187.5 billion they received from the U.S. Treasury for their 2008 bailouts.

Strong profits might blunt dismantle proposal

The December quarter marked its eighth straight quarterly profit for Fannie. For 2013 as a whole, Fannie’s net income was a record $84 billion, thanks to recovery in the housing market and some tax-related windfalls.

The mortgage giants’ string of strong quarterly profits could stall the drive to dismantle the Government-Sponsored Enterprises. According to Margaret Chadbourn and Emily Stephenson of Reuters the dismantle move has been stalled after groups banking on Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s survival rallied to their cause.

A mix of bills has been introduced in the Senate and House of Representatives for dismantling Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC). For instance, a trio of House Democrats – John Delaney, John Carney and Jim Himes – unveiled a new proposal that would wind down the GSEs over five years, creating a path for their eventual sale.

Recently, Rafferty Capital Market’s Richard X. Bove took a deep dive into the Fannie Mae and Freddie Mac issue, arguing that the government has been a little too heavy-handed, perhaps overstepping its bounds, much to the frustration of non-government shareholders.

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