It may be time to call on Fannie Mae or Freddie Mac
Steve’s breakdown: Freddie and Fannie are making money again, and everyone wants it. Whether they stay under Government control or not, they paid us back and it may be time to tell their story.
McLEAN, VA & WASHINGTON, DC: Fannie Mae and Freddie Mac, the mortgage financing giants taken over by the government in 2008, plans to send taxpayers another $4.6 billion next month as they continue to play major roles in the country’s housing market.
That will bring the total Fannie Mae has sent to the U.S. Treasury to $147.6 billion. Freddie Mac has forked over $98.2 billion. Combined, they have returned far more than the $187 billion the government spent to bail them out.
That steady flow of cash to the government is complicating a long-simmering battle between Congress, regulators and an increasingly frustrated Wall Street over the fate of the companies — and their mega profits.
Congress has yet to act on proposals to wind down the companies and the companies continue to back loans supporting much of the housing market.
Regulators warned this week that keeping the companies under government conservatorship is getting riskier, suggesting they might need to hang on to cash to boost their reserves, while investors who own shares of D.C.-based Fannie and McLean, Va.-based Freddie say they deserve some of the profits now being sent solely to the Treasury Department.
In a speech before the Bipartisan Policy Center earlier this week, Fannie Mae and Freddie Mac’s chief regulator said the companies cannot operate under the current circumstances forever. Even as they send billions to the U.S. Treasury, their own capital reserves are shrinking, said Melvin L. Watt, director of the Federal Housing Finance Agency.
“Some of the challenges and risks we are managing are escalating and will continue to do so the longer the enterprises remain in conservatorship,” he said.
The government seized control of both companies in 2008 as the housing market unraveled and the firms’ losses piled up. Taxpayers pumped billions into the companies, but over the last few years Fannie Mae and Freddie Mac, which buy mortgages from lenders, and then package them into securities to sell to investors, have been spewing profits that feed into government coffers.
That has roiled shareholders, who are suing to have the arrangement overturned. Some of the suits have already been thrown out, but others are making their way through the courts, arguing that keeping the firms under government conservatorship is unfair to shareholders.
The latest suit, filed in the Northern District of Illinois earlier this month, accuses the government of overstepping its authority. “Plaintiffs bring this action to put a stop to the federal government’s naked, unauthorized, and ongoing expropriation of private property and contractual rights,” the lawsuit says.
The Treasury Department and FHFA declined to comment on the lawsuits.
“The best long-term solution is comprehensive housing finance reform,” a Treasury spokesman said in a statement Friday.
In the meantime, Fannie Mae and Freddie Mac appear likely to continue turning out profits for taxpayers for the foreseeable future.
On Friday, Fannie Mae reported that it made a profit of $11 billion last year. On Thursday, Freddie Mac said it had brought in a profit of $6.3 billion in 2015. Both pointed to higher long-term interest rates for boosting their bottom lines.
“Our strong 2015 results demonstrate our commitment to improving both our company and the broader housing finance system,” Fannie Mae’s chief executive, Timothy J. Mayopoulos, said in a statement.