Treasury Tightens Up Terms of Fannie and Freddie Bailout Deal

Freddie Mac
By MARTIN CRUTSINGER

The government is changing the terms of its bailout agreement with Fannie Mae and Freddie Mac in a way that will shrink the holdings of the two mortgage giants more quickly and will require payment to the government of all quarterly profits the companies earn.

The Treasury Department announced the changes Friday in an effort to deal with concerns that the companies could at some point exhaust the federal support they were guaranteed when they were taken over by the government in September 2008 during the financial crisis.

The two firms would have to turn over all profits they earn every quarter. They would also be required to accelerate the reduction of their mortgage holdings to hit a cap of $250 million by 2018, four years earlier than planned.

Under the new arrangement, the firms' portfolios can be no larger than $650 billion each at the end of this year.

"With today's announcement, we are taking the next step toward responsibly winding down Fannie Mae and Freddie Mac while continuing to support the necessary process of repair and recovery of the housing market," said Michael Stegman, who serves as Treasury Secretary Timothy Geithner's counselor on housing policy.

The government rescued Fannie and Freddie in September 2008 when massive losses on risky mortgages threatened to topple them. The Treasury has pumped nearly $188 billion into the companies. In return for that support, the government has received senior preferred shares of stock that pay a 10 percent dividend.

Currently, Fannie and Freddie make dividend payments to the Treasury every quarter. That has forced them to borrow money from the government and use that money to repay the government in periods when they didn't turn a large enough profit to cover the dividend payments.

The changes announced Friday are aimed at avoiding the threat that Fannie and Freddie could one day exhaust their Treasury support because they did not generate enough profits to pay back their dividends.

Under the new arrangement, the government will simply take all the profits that the firms make in any quarter as a dividend payment. The government will not require a dividend payment in periods when the firms run a loss.

So far, Fannie and Freddie have paid nearly $46 billion in dividends.


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Matt

"That has forced them to borrow money from the government and use that money to repay the government in periods when they didn't turn a large enough profit to cover the dividend payments."

If that makes economic sense to you, then you have no business running a lemonade stand, let alone billion dollar companies.

August 21 2012 at 5:43 PM Report abuse +1 rate up rate down Reply
basscat58

Why not do what Canada did in the 90's get out of the housing lending market! All private now and works well!
Loans are made to those with down payments and income! Under Geithner's plan the Taxpayer's still are on the hook for bad loans. Time to unwind Fannie/Freddie take your loses then move on. I am sure the some one will pick up the best pieces of properties.

August 21 2012 at 3:12 PM Report abuse +1 rate up rate down Reply
Online now

It makes good sense !

August 20 2012 at 11:07 AM Report abuse rate up rate down Reply
kimberliwilson

Fannie Mae let JP Morgan reinsure force placed insurance. If JP took up to 75% of the proceeds from this over priced insurance, then why is Fannie Mae not asking JP Morgan for all the over billed money back? I guess when you can turn to the government and ask for 100 billion when you can't pay your bills, then the incentive is at least there to participate in pay to play, to run the bill up as high as you can get it. If you choose the insurance company, get 75% of the proceeds, and set it up where you reinsure the policy so you are the party that would also file the claim, why is this not considered an empty shell for billing? Does this make JP Morgan the customer the seller and the party that files claims?
If this is the case, then why would JP Morgan not be required to bail out Fannie Mae, instead of us? It's been 4 years now and taking all of Fannie Maes profit is a good first step. Step 2 look for split deals between Fannie and JP. Step 3 have JP return any and all money they over billed Fannie to Fannie and it won't take until 2018 to shut this poorly run organization down and we won't have to stay in the shut down mode so long and can spend this energy on recovery instead.

August 20 2012 at 8:46 AM Report abuse rate up rate down Reply
kentblackdog

This is just the old, shift the money game, the Dems have played for years with Fannie, Freddie, the FED and Theasury

Talk about a great slush fund for the Dems, just like it has been in the past

Nothing new here.

August 19 2012 at 11:19 PM Report abuse +1 rate up rate down Reply
1 reply to kentblackdog's comment
Tommy

So what do you think the Repbs would have done differently??

August 20 2012 at 9:06 AM Report abuse -1 rate up rate down Reply
STAN

Barney Frank and his lovely bride will have to come out of retirement and force the banks to once again loan money to fannie and freddie. Starting another housing crisis.

August 19 2012 at 10:44 PM Report abuse rate up rate down Reply
ken

the fed gov has nothing to loose.they use our hard earned money to help everyone out.mainly or taxes.when thats not enoff they then hit social security.and when thats gone then they get the fed reserve involved.and this gives them anything they want.and they can do anything they want and no one can stop them.there will be another depression.people everywhere in small groupes are gitting ready for a colapse.and i think we should all get ready.because its comming soon.if your not ready and don't at least start getting ready NOW!! there will be nothing left. so start preping for you and your family find a hobby protect your home or shelter because when its all gone the ones that didn't prep or put aside.will be looking to take what you have.and will kill you to get it.

August 19 2012 at 8:55 PM Report abuse rate up rate down Reply
ken

one good crook deserves another.the goverment is the bigest crooks going. and they cover up there lies.one lies and the other swares to it.they make the laws to protect them selfs.and there lies.my wife and i desided not to vote any more.because they make promises they can't keep.just take take take from the little people.

August 19 2012 at 8:44 PM Report abuse rate up rate down Reply
Robert

What a joke. Both these mortgage giants are controled by the Federal Reserve and the Federal Reserve owns the Treasury. So is this suppose to make me sleep better at night? Oh, I fogot it's for the benefit of the dummies who don't understand this shell game the FEDs play.

August 19 2012 at 3:29 PM Report abuse +3 rate up rate down Reply
Linda

The Correct Change needs to happen. Very, Very SOON.

August 19 2012 at 1:07 PM Report abuse +2 rate up rate down Reply