Fannie Mae and Freddie Mac continue to finance Government deficit

My goal in this post is just to report the facts. My opinions on the ethics of the change the Treasury imposed on the terms of the bail-out of Fannie and Freddie  have been expressed in previous posts. The result of the change is that by the end of March 2014 Fannie and Freddie will have repaid more than they borrowed from the Treasury but, because these payments have been deemed by the Treasury to be dividends rather than capital payments (like interest rather than principal on our mortgages) the two companies still “owe” the Treasury as much as before they made payments.

The “dividends” from Fannie and Freddie in calendar 2013 totaled $134 billion which contributed to a reduction in the budget deficit as shown in the chart below. Bear in mind that the numbers relate to a September 30 year end but the basic argument is intact:Fannie and Freddie have been helping to reduce the deficit.

Source: US Treasury

From Fannie Mae’s 2013 earnings report, February 21, 2014:
“Fannie Mae will pay Treasury $7.2 billion in dividends in March 2014. With the March dividend
payment, Fannie Mae will have paid a total of $121.1 billion in dividends to Treasury in
comparison to $116.1 billion in draw requests since 2008. Dividend payments do not offset prior
Treasury draws.”

Source: Fannie Mae

From Freddie Mac’s 2013 earnings report, February 27, 2014:
“Paid aggregate cash dividends of $71.345 billion to Treasury through December 31, 2013, exceeding
cumulative cash draws of $71.336 billion received from Treasury
 Based on December 31, 2013 net worth of $12.8 billion, the company’s March 2014 dividend obligation
will be $10.4 billion, bringing total cash dividends paid to Treasury to $81.8 billion
 Senior preferred stock held by Treasury remains $72.3 billion, as dividend payments do not reduce prior
Treasury draws
 The capital reserve amount used to calculate dividends under the Purchase Agreement decreased from
$3.0 billion in 2013 to $2.4 billion for each quarterly payment in 2014

Source: Freddie Mac

If you  – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 781.631.1223 or [email protected].

Andrew Oliver is a Realtor with Harborside Realty in Marblehead