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By Margaret Chadbourn
WASHINGTON May 8 Government-controlled mortgage
finance firms Fannie Mae and Freddie Mac
will send the U.S. Treasury dividends totaling $10.2 billion
after posting quarterly profits driven mainly by income from
Fannie Mae posted net income of $5.3 billion for the three
months ended March 31, which included $4.1 billion from
settlements of litigation over mortgage-backed securities.
Freddie Mac earned a net income of $4.0 billion in the same
period, reflecting $4.9 billion from litigation over
mortgage-backed securities it had acquired.
"Our recent level of earnings is not sustainable over the
long term," said Donald Layton, Freddie Mac's chief executive
officer. "Our results have been dominated for more than a year
by one time and cyclical recovery items."
Fannie Mae and Freddie Mac's regulator, the Federal Housing
Finance Agency, sued large banks and financial institutions over
mortgages sold to the companies leading up to the housing
crisis. The FHFA alleged Fannie Mae and Freddie Mac had been
misled about the soundness of the underlying mortgages.
The companies, which own or guarantee 60 percent of all U.S.
home loans, were placed in conservatorship in September 2008 as
soured loans threatened their solvency.
Fannie Mae and Freddie Mac will have returned $213.1 billion
to taxpayers by the end of June in return for the $187.5 billion
in aid they received after being placed under the government's
wing at the height of the financial crisis.
"While the company expects its annual net income to remain
strong over the next few years, the company expects its annual
net income to be substantially lower than its net income for
2013," Fannie Mae said in a statement.
Under their bailout terms, Fannie and Freddie must turn
their profits over to the Treasury as dividends on the
controlling stake the government took when it seized them. They
cannot repurchase the government's share.
To avoid the need for any future taxpayer rescues, the Obama
administration and lawmakers on Capitol Hill have vowed to wind
down the companies and totally revamp the housing finance system
The duo do not lend directly to home buyers. Instead, they
buy them from lenders and package them into securities that are
sold to investors with a guarantee. In doing so, they help keep
the mortgage market liquid.
The Senate Banking Committee will vote on a bill next week
that would establish a government backstop for the mortgage
market, but one that would only kick in after private investors
took a big hit.
The bill, which is supported by the White House, has yet to
garner the broad support it needs to ensure final passage. A
Republican-backed bill in the U.S. House of Representatives
would limit federal mortgage guarantees more sharply.
(Reporting by Margaret Chadbourn; Editing by Sofina Mirza-Reid)