Updated from 4.14 p.m. EST with market close information, additional information from the Federal Housing Finance Agency, and comments from Paul Hastings partner Kevin Petrasic and Pepper Hamilton partner Timothy McTaggart.
Shares of both government-sponsored mortgage giants popped again early on Wednesday, a day after both soared on the prospect that the recapture of massive deferred tax valuation allowances could point the way to the repayment of government bailout money. Both companies were taken under government conservatorship in September 2008.
Fannie Mae's shares were up 50% to close at $1.08, after rising 38% on Tuesday. The Wall Street Journal on Tuesday called attention to a filing last Thursday, when the company said it would delay filing its annual 10-K report to the Securities and Exchange Commission.Fannie said it would need extra time to analyze whether or not it could recapture some of its $61.5 billion valuation allowance for deferred tax assets (DTA), as of Sept. 30. Shares of Freddie Mac rose 54% also closing at $1.08, following a 35% gain on Tuesday. As of Sept. 30, the government had $116.1 billion in preferred Fannie Mae shares, and Fannie had paid the Treasury $28.5 billion in dividends. Fannie reported a third-quarter profit of $1.8 billion, which was the company's third consecutive profit. Earnings for the first three quarters of 2012 were $9.7 billion, compared to a net loss of $14.4 billion during the first three quarters of 2011. The company was also able to pay its third-quarter dividend of $2.9 billion in the Treasury's preferred shares, without resorting to further government borrowings. Fannie in the first quarter benefited from a major settlement of a long-term dispute with Bank of America (BAC - Get Report). The bank agreed to pay Fannie $3.6 billion in cash and roughly $6.75 billion to repurchase about 30,000 mortgage loans. Freddie Mac filed its 2012 10-K on time, on Feb. 28, saying its valuation allowance for deferred tax assets (DTA) was $31.7 billion, as of Dec. 31. The government held $72.2 billion in Freddie Mac preferred shares at the end of 2012. Freddie earned $11 billion during 2012, swinging from a loss of $11 billion in 2011. The company paid $7.2 billion in dividends to the Treasury during 2012, for a total of $23.8 billion in dividends paid since the company was taken under conservatorship.