* Companies to pay U.S. $10.2 billion in bailout dividends
* Payments to push taxpayers further into black on bailout
* Dividends do not count as repayment of taxpayer aid
* Regulator has secured $16 billion in mortgage settlements
(Adds details on legal settlements, background; updates to
include after-tax settlement income)
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
Their regulator had sued 18 financial institutions, alleging
they misled Fannie Mae and Freddie Mac about the soundness of
mortgages that underlay securities they sold to the two
government-run companies. Those lawsuits have resulted in
settlements totaling about $16 billion so far.
Fannie Mae on Thursday announced a $5.3 billion profit for
the three months ended March 31, which included after-tax income
of $2.8 billion from the settlements over the private-label
mortgage-backed securities. Freddie Mac said it earned a net
income of $4.0 billion in the same period, reflecting $3.4
billion connected to the litigation.
Under their bailout terms, Fannie Mae and Freddie Mac must
turn their profits over to the Treasury as dividends on the
controlling stake the government took when it seized them at the
height of the financial crisis in 2008.
The companies, which own or guarantee 60 percent of all U.S.
home loans, 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.
But their latest results suggested the record profits they
enjoyed last year are unlikely to be matched anytime soon.
"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."
A run up in mortgage rates over the past year has dampened
home sales, and Federal Reserve Chair Janet Yellen said on
Wednesday that a protracted housing slowdown could undermine
hopes for stronger economic growth this year.
"We expect our annual earnings to remain strong over the
next few years but substantially lower than we experienced in
2013," said Timothy Mayopoulos, Fannie Mae's chief executive
officer. "Earnings may vary significantly from quarter to
quarter and year to year due to a number of different factors
such as changes in home prices or changes in interest rates."
The White House estimates the companies could pay the
government $179.2 billion over the next 10 years if they are not
But to avoid the need for future taxpayer rescues, the Obama
administration and lawmakers on Capitol Hill have vowed to wind
down the companies and revamp the housing finance system they
The duo do not lend directly to home buyers. Instead, they
buy mortgages 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 market, but
one that would only kick in after private investors took a big
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.
In mid-afternoon trade, Fannie Mae's common stock was up
about 1 percent at $4.14, while Freddie Mac's was up about 0.75
percent at $4.10. Preferred shares for both companies
Private shareholders, including Perry Capital LLC and
Fairholme Capital Management, have sued the government, claiming
it is expropriating the value of their preferred shares.
The litigation is expected to drag out for years, as is the
congressional effort to remake the housing finance system.
(Reporting by Margaret Chadbourn; Editing by Sofina Mirza-Reid
and Andrea Ricci)