Fannie Mae profits push taxpayers into black on housing bailout
Fannie Mae said on Friday it would soon send the US Treasury $7.2 billion, a profit-related dividend that makes taxpayers whole for the 2008 bailout of the mortgage-financing giant and its sibling company Freddie Mac. Unlike other companies rescued by taxpayers during the financial crisis, however, the firms will remain under government control until Congress winds them down or replaces them.
Copyright Reuters, 2014
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. "We expect to remain profitable for the foreseeable future," Fannie Mae President and Chief Executive Officer Timothy Mayopoulos said on a call with reporters. "Our annual earnings will remain strong and healthy ... nonetheless we also expect they will be substantially lower than in 2013."
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 US 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 honour 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 totalling $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.