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Politics, Not Math, Drive Fannie Mae Earnings

Stocks in this article: FNMA FMCC C

Proposed bipartisan legislation called the "Jumpstart GSE Reform Act," offered last month by Senators Mark Warner, (D-Va.,) David Vitter, (R-La.), Elizabeth Warren (D., Mass.) and Bob Corker (R., Tenn.) intends to address the "piggy bank" issue. It would prevent the use of revenue from increased guarantee fees from being used to offset other government spending.

But let's say your name is Treasury Secretary Jack Lew and you may want to use Fannie and Freddie for some grand idea. Or maybe you just haven't made up your mind yet. You want to make up your mind with as little interference as possible. A $7.6 billion quarterly profit certainly grabs people's attention, but not as much as a $66.5 billion one.

Whatever they may tell you and me, Fannie Mae executives work for Jack Lew. If they report a $66.5 billion profit, it only makes his job more difficult by drawing attention to the fact that there's lots of money coming into the Treasury and he hasn't made up his mind what to do about it yet. So they reported a $7.6 billion profit instead, along with more than $17 billion for all of 2012.

When I suggested that Fannie Mae executives chose not to report a $66.5 billion profit for fear of attracting too much attention, spokesman Pete Bakel did his best to act offended.

"This was an accounting decision. There's no fear in the profits," he said, adding, "we're very proud of the profits we made for 2012."

Bakel and another spokesman, Andrew Wilson, pointed out that Fannie Mae executives have made it clear that could release the valuation allowance as soon as the first quarter."

Could, would and should are all well and good, but as far as politicians are concerned the longer they can delay taking any action on Fannie and Freddie, the better.

To his credit, perhaps, Senator Corker of Tennessee appears to be taking the high road.

The profits of Fannie and Freddie, Corker stated in a press release, are "no excuse for inaction."

There's still lots to decide about the fate of Fannie and Freddie, which is to say the future of housing finance in the United States. Even the debate has barely begun. The increasing profitability of these giants, however, may ultimately force the government's hand.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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