This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Treasury Finally Gives Up Fannie, Freddie Dividend Charade

NEW YORK ( TheStreet) -- The U.S. government will finally scrap the original bailout agreements with Fannie Mae (FNMA) and Freddie Mac (FMCC) that had the U.S. Treasury Department demanding dividends from the housing agencies there were often funded with taxpayer dollars.

The Treasury said that it would modify its bailout agreements with Fannie and Freddie to "make sure that every dollar of earnings each firm generates is used to benefit taxpayers, and support the continued flow of mortgage credit during a responsible transition to a reformed housing finance market." While the tough-sounding language about "every dollar of earnings" is in tune with the political climate, the government's move actually eases pressure on Fannie and Freddie, since the high dividend will no longer be "tacked onto the principal."

The Treasury's move is likely to ease the concerns of investors who rely on the government's guarantee when purchasing the debt continually issued Fannie and Freddie to fund mortgage purchases.

Michael Stegman, counselor to Treasury Secretary Tim Geithner for housing policy, said that "as we continue to work toward bi-partisan housing finance reform, we are committed to putting in place measures right now that support continued access to mortgage credit for American families, promote a responsible transition, and protect taxpayer interests."

When Fannie Mae and Freddie Mac were taken under government conservatorship by the Federal Housing Finance Agency in September 2008, part of the bailout agreement included having the bloated housing giants paying 10% dividends on the preferred shares held by Treasury. As of June 30, the government held $117.1 billion in Fannie Mae preferred shares, requiring annual dividends of $11.7 billion and $72.3 billion in Freddie Mac preferred shares requiring annual dividends of $7.2 billion.

Neither company requested a draw for further government aid for the second quarter, but both companies said that they expected to make some further draws to cover the preferred dividends.

Fannie said in its second-quarter 10-Q filing that the annual dividend on government-held preferred shares "exceeds our reported annual net income for every year since our inception," adding that "we do not expect to generate net income or comprehensive income in excess of our annual dividend obligation to Treasury over the long term," and that "our dividend obligation to Treasury will increasingly drive our future draws under the senior preferred stock purchase agreement."
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs