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

Politics, Not Math, Drive Fannie Mae Earnings

NEW YORK ( TheStreet) -- Fannie Mae (FNMA) reported a record $7.6 billion profit for the fourth quarter, but the government-owned mortgage guarantor could easily have announced a figure of $66.5 billion.

The $58.9 billion difference consists of a something known to tax geeks as a valuation allowance on deferred tax assets. Essentially these are tax credits Fannie accumulated during several years of multibillion dollar losses while it bore the brunt of the subprime housing crisis.

Accounting rules provide some flexibility regarding when these credits can be counted as income. Much depends upon management estimates of future profits, and we all know those estimates often tend toward the optimistic. Citigroup (C - Get Report), for example, took a fair amount of heat from Mike Mayo in 2009, when the well-known analyst argued the bank was too aggressive in its assessment of when it would be able to make use of its tax credits.

But corporate tax consultant Robert Willens, who joined Mayo in criticizing Citigroup for being too aggressive, believes Fannie Mae is erring on the side of caution.

"If it was just purely accounting I think the factors would line up in favor of releasing at least part of the valuation allowance," Willens said.

So why are Fannie Mae executives being so shy?

Probably because many powerful people in Washington would prefer not to draw too much attention to Fannie's profits, nor those of Freddie Mac (FMCC).

The more money these Government-sponsored enterprises (GSEs) make, the more elected officials have to play with. If the public starts paying attention, however, that becomes more difficult.

Fannie still owes taxpayers $117 billion, a number that hasn't shrunk even though it has paid $35.6 billion in dividends back to the Treasury. When I interviewed former House Financial Services Chairman Barney Frank recently, he thought the debts were in the "hundreds of billions."

But the government officials who keep close tabs on Fannie realize what the numbers truly are. They also know that there is increasing concern that the profits of the GSEs will be used as a private piggy bank. In May, Senator Dianne Feinstein (D-Calif.) proposed using increases in the insurance fee charged by Fannie and Freddie to help "underwater" home owners refinance their mortgages. In December, the House of Representatives voted to use fee increases to pay for a student visa program.
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
FMCC $1.55 0.00%
FNMA $1.70 0.00%
C $46.28 0.00%
AAPL $93.74 0.00%
FB $117.58 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