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 When it makes the payment next month, Freddie Mac will have paid
about $81.8 billion in dividends in return for the $71.3 billion in
support it received from the Treasury when it was bailed out during
the financial crisis.
The nation's second-largest mortgage finance company earned a net
income of $8.6 billion in the three months ended December 31, paving
the way for the payment. The income brought earnings for 2013 to
$48.7 billion, its highest ever annual profit. It had net income of
$11.0 billion a year earlier.
Freddie Mac and sibling company Fannie Mae <FNMA.OB> have operated
under federal conservatorship since 2008.
The duo, which had been teetering on the brink of insolvency, must
now turn over any profits to the Treasury as dividends on the
controlling stake the government took when it bailed them out. They
cannot repurchase the government's share.
Last week, Fannie Mae reported record annual earnings and said it
would ship $7.2 billion to the Treasury, putting taxpayers ahead on
its bailout for the first time. Freddie Mac had broken even in the
prior quarter.
When they make their latest dividend payments, taxpayers will have
received $202.9 billion for their support, $15.4 billion more than
the $187.5 billion provided in bailout funds.
The companies, which own or guarantee 60 percent of all U.S. home
loans, have been helped by a housing recovery that has lifted prices
and kept a lid on defaults. Their return to profitability also
allowed them to reverse write-downs of certain tax-related assets,
leading to large one-time windfalls.
'NOT SUSTAINABLE'
"The year and quarter were extremely strong," Donald Layton, Freddie
Mac's chief executive officer, said on a call with reporters. "These
levels of income are not sustainable," he cautioned.
The company said it is seeing a moderation in home price growth that
will impact future earnings.
"We generally think we will be profitable, but we could easily have
a quarter here and there where we are not," Layton said. "We do not
believe we're repeating the sins of the past."
No one expected the two companies to become profitable again so
quickly, but when home prices surged in 2012, they were able to
recover more money than expected on soured loans.
The sizable dividend payments have complicated a debate on the
companies' future.
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To avoid ever having a taxpayer-rescue again, the Obama
administration and lawmakers on Capitol Hill have vowed to wind them
down and revamp the housing finance system.
The Senate is working on a bipartisan bill that would ensure a
government backstop for the market remains in place in times of
crisis, an approach favored by the White House. A Republican-backed
bill in the U.S. House of Representatives would limit federal
mortgage guarantees more sharply.
The companies don't make loans but instead buy them from lenders and
package them into securities they sell to investors. In doing so,
they provide a steady source of mortgage funds.
Investors including Perry Capital and Fairholme Funds have sued the
government, challenging the bailout terms that force all quarterly
profits from Fannie Mae and Freddie Mac to be swept into the
Treasury's coffer. A federal judge granted Fairholme a motion to
conduct discovery in its lawsuit against the Treasury Department on
Thursday, a ruling that allows the investment firm to seek evidence
in its case.
Separately, housing and consumer advocates have filed lawsuits
arguing that some of the profits should go into an affordable
housing trust set up just before the crisis.
The litigation is expected to drag on for years, as is the
congressional effort to remake the housing finance system.
(Reporting By Margaret Chadbourn;
Editing by Nick Zieminski)
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