May 5, 2015 / 1:00 PM / 4 years ago

UPDATE 2-Freddie Mac to hand $746 mln to U.S. Treasury

(Adds comment by CEO, background)

WASHINGTON, May 5 (Reuters) - Government-controlled mortgage finance firm Freddie Mac on Tuesday said it will cut a check to the U.S. Treasury for $746 million, its smallest dividend to taxpayers since 2009.

Freddie Mac reported a first quarter profit of $524 million, up from $227 million in the fourth quarter.

The firm, along with competitor Fannie Mae, was bailed out by U.S. taxpayers in 2008 when a housing slump and financial crisis left it on the brink of insolvency.

Since returning to profitability, the two firms have made quarterly dividend payments to the Treasury but those have begun to dwindle recently and executives have warned that further bailout funds might be required in the future.

The two firms, which fund most new mortgages and are backed by taxpayer money, are unable to build up capital under the terms of the rescue. Their regulator warned in April they could require up to $157 billion in taxpayer aid if the United States entered a severe recession.

The Obama administration has urged Congress to overhaul housing finance legislation and has recommended winding down the two firms. But lawmakers appear unlikely to tackle the matter before the 2016 presidential election.

In the meantime, executives at Freddie Mac are testing funding mechanisms that could inform the debate on how to reduce the role of the government in mortgage finance. Chief Executive Don Layton said Freddie Mac issued debt in April that would allocate losses based on actual losses seen in the securities’ underlying mortgages.

“We continue to be a good steward of taxpayer money,” Layton told journalists in a call.

Under the terms of their rescue, Freddie Mac and Fannie Mae are required to sweep their profits into the Treasury, a provision being challenged in court by several groups of investors.

Freddie Mac said the check it will send to the federal government by June will bring cumulative dividend payments to $92.6 billion, well above the $71.3 billion it received under the bailout. (Reporting by Jason Lange; Editing by Chizu Nomiyama and Nick Zieminski)

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