Fannie Mae profits push taxpayers into black on housing bailout
Credit: Reuters/Gary Cameron
The Fannie Mae headquarters is seen in Washington November 7, 2013.
But unlike other companies rescued by taxpayers during the financial crisis, the firms will remain under government control until Congress winds them down or replaces them.
The bailout terms for Fannie Mae and Freddie Mac force them to turn over their profits to the Treasury in the form of dividends on the controlling stake the government took when it bailed them out. They cannot repurchase the government's share.
In announcing the payment, Fannie Mae said it posted net income of $6.5 billion for the three-month period that ended December 31. It was the company's eighth straight quarterly profit.
For 2013 as a whole, its net income was a record $84.0 billion, helped by a recovery in the housing market and some tax-related windfalls. That compares to its previous record profit of $17.2 billion a year earlier.
'While Fannie Mae expects to be profitable for the foreseeable future, the company does not expect to repeat its 2013 financial results,' the company said in a press release.
Both Fannie Mae and Freddie Mac last year benefited from a recovering market that lifted home prices and kept a lid on loan defaults. Their return to profitability also allowed them to reverse write-downs of certain tax-related assets, which led to large one-time windfalls.
The duo, which own or guarantee 60 percent of all U.S. home loans, were seized by the government as mortgage losses threatened their solvency.
Officials felt they could not let the companies collapse because they played a role that was too important, providing liquidity to the mortgage market by buying loans from lenders and repackaging them as securities for investors. They also feared a failure to honor the guarantees the companies made on loans would lead to an even deeper crisis.
Before returning to the black last year, Fannie Mae had suffered five years of losses totaling $164 billion, and it had drawn $116.1 billion in taxpayer aid.
Freddie Mac, which lost $94 billion between 2007 and 2011 before it turned things around, was supported by $71.3 billion in bailout funds. While Freddie Mac has yet to report fourth quarter results, it has already paid $9 million more in dividends than it received in aid.
The dividend payment to Treasury by Fannie Mae means that combined with Freddie Mac they will have more than repaid the government, paying dividends of about $192.5 billion compared to the $187.5 billion they have drawn for their 2008 bailouts.
To avoid ever having to come to their rescue again, the Obama administration and lawmakers on Capitol Hill have vowed to revamp the housing finance system and do away with Fannie Mae and Freddie Mac as they are currently constituted.
The Senate is working on a bipartisan bill that would ensure there will be a government backstop for the market in times of crisis, an approach favored by the White House. A Republican-backed bill in the U.S. House of Representatives would limit federal mortgage guarantees more sharply.
Last year's dividend payments are not expected to be matched this year. However, Fannie Mae and Freddie Mac are likely to keep paying billions to the Treasury, unless there is a sudden downturn in the housing market, Congress shutters them or lawsuits challenging the dividend requirement are successful.
(Reporting By Margaret Chadbourn; Editing by Chizu Nomiyama)
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