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WRAPUP 3-Taxpayers close to breaking even on Fannie Mae, Freddie Mac bailout
November 7, 2013 / 3:31 PM / 4 years ago

WRAPUP 3-Taxpayers close to breaking even on Fannie Mae, Freddie Mac bailout

* Mortgage finance firms to send U.S. Treasury $39.0 billion
    * Freddie Mac bailout now profitable, Fannie Mae still short
    * Companies cannot escape gov't control even with payments


    By Margaret Chadbourn
    WASHINGTON, Nov 7 (Reuters) - Government-run Fannie Mae and
Freddie Mac, America's biggest providers of housing finance,
will send $39.0 billion to the U.S. Treasury in December,
leaving them within a hair of covering the cost of their 2008
bailout.
    Freddie Mac said on Thursday it will pay $30.4
billion in dividends after a multibillion-dollar tax-related
windfall fueled a record profit in the third quarter.
    Its larger sibling and fellow state ward Fannie Mae
 said it would make an $8.6 billion payment.
    The companies, which own or guarantee about two-thirds of
all U.S. home loans, were seized by the government at the height
of the financial crisis as mortgage losses threatened their
solvency. They are now seeing profits surge as housing rebounds.
    Even so, lawmakers on Capitol Hill have said they are intent
on winding down the companies to ensure taxpayers will never be
on the hook for big mortgage losses again.
    When Freddie Mac makes its payment in December, it will have
returned all of the $71.3 billion it received in taxpayer aid,
and an additional $9 million. Fannie Mae's dividend will leave
it about $2.2 billion shy of the $116.1 billion it received.
    "We are quickly approaching the point when taxpayers will
receive a positive return on their investment in this company,"
Fannie Mae Chief Executive Tim Mayopoulos told reporters during
a conference call. "That's obviously very good news for
taxpayers."
   
 
    
    SHARP TURNAROUND
    Rising home prices, falling mortgage delinquencies and
higher loan fees have led to a sharp turnaround for the
companies. Both also have now booked big gains by reversing
write-downs on certain tax assets.
    By early next year, taxpayers likely will have turned a
profit. The two firms' bailout agreements, however, do not allow
them to buy back the $189 billion worth of senior preferred
shares the government received in return for its aid.
    Under the bailout terms, they will continue to make dividend
payments as long as they are profitable.
    The sizable profits the two companies have enjoyed in recent
quarters have led some investors to speculate that they could be
spun off again as private firms.
    But Republicans and Democrats in the U.S. Congress, as well
as President Barack Obama, have all called for replacing Fannie
Mae and Freddie Mac with a new housing finance system. The
companies provide liquidity to the mortgage market by buying
loans from lenders and repackaging them as securities that they
offer investors with a guarantee.
    "While I'm always glad when taxpayers see a return on 
investment, we can't forget that Fannie and Freddie wouldn't be
earning one penny today without the government guaranteeing
their transactions," Republican Senator Bob Corker said in a
statement. "I don't know of any other company in America that
gets that kind of deal."
    Plans to revamp the housing finance system have emerged in
both the Senate and the House of Representatives. The bipartisan
Senate bill would ensure a government backstop for the market
remains in place in times of crisis, an approach favored by the
Obama administration. The Republican bill in the House more
sharply limits government mortgage guarantees.
    
    STRING OF PROFITS
    Taking into account a decision to write up nearly $24
billion in tax-related assets, Freddie Mac's net income was
$30.5 billion for the period that ended Sept. 30.
    But even its pre-tax income of $6.5 billion, which compared
with net income of $2.9 billion a year earlier, showed the
company on solid footing. It was the eighth straight quarter of
profitability.
    "We're a stronger and better run company than we have been
in years," Donald Layton, chief executive officer of Freddie
Mac, told reporters.
    Fannie Mae, which has posted seven straight quarterly
profits, reported net income to $8.7 billion in the third
quarter, up from $1.8 billion a year ago.
    Both companies had been hobbled by a four-year housing slump
that sent home prices plummeting and led to record foreclosures.
    But rising home prices and a drop in delinquency rates
helped drive profits in the third quarter, they said. They were
also helped by payments from banks for legal settlements
relating to soured loans.
    "We do expect annual earnings to remain strong for the
foreseeable future," said Mayopoulos. At the same time, he
cautioned that future quarters may not be as profitable, due to
possible changes in home prices or interest rate fluctuations.
    In addition, the companies are tightening lending standards
and shrinking their mortgage portfolios, which could lead to
smaller profits over the next few years.

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