Government-owned mortgage buyers Fannie Mae and Freddie Mac are both reporting big second-quarter profits, generated by an improving housing market. Together, the two companies plan on sending $14.6 billion in dividends to the Treasury Department.
After announcing net income of $10.1 billion and $5 billion for the second quarter, respectively, Fannie Mae and Freddie Mac’s dividend payments to the Treasury will total $146 billion by September.
Through the first quarter, Fannie and Freddie had received $187 billion in taxpayer assistance after being bailed out in September 2008, according to the regulator charged with overseeing the government-sponsored enterprises.
The Obama administration anticipates that the Treasury will collect more than $238 billion from the companies over the next 10 years, as a once-costly bailout slowly starts to ease the fiscal strain on the government.
Fannie and Freddie’s dividend payments have helped prolong the Treasury’s ability to keep paying the government’s debts while up against the debt ceiling. Since hitting the statutory limit of roughly $16.7 trillion on May 19, the Treasury has resorted to extraordinary measures to maintain the government’s functioning and meet its debt obligations without issuing new debt.
Thanks to continued recent payouts from Fannie and Freddie, especially a $50 billion release of a deferred tax asset by Fannie Mae in June, the Treasury will be able to keep making interest payments on the debt through mid-October or mid-November while remaining under the limit, according to the Bipartisan Policy Center’s estimates. Beyond that point, the government risks failing to meet its obligations.
Not everyone is pleased with the GSEs’ contributions to the feds’ coffers, however. In July, the hedge fund Perry Capital and other investors sued the Treasury over Fannie and Freddie’s interest payments. The funds charge that the Treasury illegally stripped them of their investments when the department announced in August 2012 that every dollar of profits from the companies would flow directly to the Treasury in the future.
Richard Epstein, a New York University law professor representing Perry Capital in its lawsuit, wrote in a recent commentary that “Treasury used a fancy set of legal maneuvers to strip both corporations of their assets for the sole benefit of the government.”
Fannie and Freddie are publicly traded companies operating under federal conservatorship. With the Federal Housing Administration, they guaranteed roughly 90 percent of all new home mortgages last year.
Earlier in the week, President Obama proposed winding the companies down and replacing them with a more limited system of government insurance for mortgages. Obama’s plans closely parallel a bill introduced by a bipartisan group of senators on the Senate Banking Committee. House Republicans have advanced a more conservative measure through the Financial Services Committee that would dissolve Fannie and Freddie and limit government insurance of mortgages to loans made to low-income families through the FHA.