Fannie Mae and Freddie Mac have both been critical issues when it comes to the housing crisis. The government wanted these agencies to create equal housing opportunities, and these agencies provided the mechanism for unfettered house buying for all. These agencies are relied upon heavily by individuals seeking a mortgage, and these agencies are hated by many taxpayers.
Now their profits are going to be seized by the Treasury. A four-year old pact is being revamped and now the bailout dividend terms will be replaced with profits going to the Treasury. Make no mistake about one thing here: This is another step toward a winding-down of these quasi agencies, even if the Treasury is claiming that it still supports the mortgage market.
The 10% dividend payments will be suspended, but all profits will now go the Treasury. In the latest quarter, the Treasury did get its dividend payments without borrowing AND there were profits. And on that winding-down scenario, Fannie and Freddie will accelerate the downsizing of their mortgage portfolios. Starting in 2013, each will be required to cut the mortgage portfolios by 15% per year versus a 10% reduction now.
With almost $200 billion having been injected into Freddie and Fannie, maybe this will cut the taxpayer risk and maybe this will get these closer and closer to joining the banks and insurance companies in finally paying back Uncle Sam (actually, the taxpayers) for bailing them out.
JON C. OGG