Fannie Mae sending $10.2 billion to taxpayers as profit swells

Thu Aug 8, 2013 4:49pm EDT
 
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By Margaret Chadbourn

WASHINGTON (Reuters) - Fannie Mae FNMA.OB, the largest U.S. mortgage finance company, said on Thursday its second-quarter profit nearly doubled to $10.1 billion, triggering another big payment to the U.S. Treasury that could complicate the debate over revamping Fannie and its smaller sibling, Freddie Mac.

The quarterly profit was Fannie's sixth in a row, mainly driven by a housing recovery that has reduced mortgage delinquencies and lifted home prices. The government rescued Fannie Mae and Freddie Mac FMCC.OB in 2008, covering losses on soured loans. Since then, taxpayers have bailed out the pair to the tune of nearly $188 billion.

Fannie Mae said it will make a $10.2 billion dividend payment in September to the U.S. Treasury for its rescue aid. After that payment, which comes on the heels of nearly $60 billion Fannie sent to the government last quarter, it will have paid about $105 billion in dividends to the Treasury, roughly 90 percent of the $117.1 billion it received in taxpayer assistance.

Meanwhile, Freddie Mac, which on Wednesday reported its second-largest profit ever, $5 billion, will be sending Treasury a $4.4 billion check next month. That will bring its running total to about $41 billion, or close to 60 percent of the $71 billion in bailout funds provided to Freddie.

Under the terms of the bailout agreement, both mortgage companies are only allowed to hold $3 billion in net worth and all profit in excess of that goes back to taxpayers.

Moreover, none of the dividend payments goes toward repaying the $188 billion in rescue funds, which were provided by the government and gave it a controlling stake in the form of preferred shares. Neither company has the option of buying back the stakes, which is one of the big questions regarding their future.

For the second quarter, Fannie Mae's profit rose 97 percent to $10.1 billion from $5.1 billion the year before. It was down, however, from the first quarter's record $58.7 billion, which was largely the result of an accounting gain from the recognition of more than $50 billion in deferred tax assets.

President Barack Obama on August 6 said he wants to wind down Fannie Mae and Freddie Mac and reduce the government's share of the mortgage market. The government currently backs about 90 percent of the market.   Continued...

 
A view shows the Fannie Mae logo at its headquarters in Washington March 30, 2012. REUTERS/Jonathan Ernst