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van Doorn: Fannie Mae Is a Government Cash Machine

Updated from 12:25 p.m. ET with, with a correction to show that Fannie has pretty much fully tapped its DTA, and with very strong late afternoon market action for junior preferred shares of Fannie Mae and Freddie Mac.

NEW YORK ( TheStreet) -- Fannie Mae (FNMA) on Thursday reported a first-quarter profit of $58.7 billion, setting up a $59.4 billion dividend to the U.S. Treasury.

The government-sponsored mortgage giant and its rival Freddie Mac (FMCC) were taken under government conservatorship at the height of the financial crisis in September 2008. Under the revised terms of the bailout agreement, the two companies are required to pay quarterly dividends to the U.S. government equal to their net worth in excess of $3 billion.

The U.S. government has $117.1 billion in Fannie Mae preferred shares and $72.3 billion in Freddie Mac preferred shares as of March 31. Both companies -- known as the GSEs -- have been able to stop drawing additional funds from the Treasury because of their sustained profitability.

Fannie Mae's first-quarter pre-tax net income was $8.1 billion, increasing from $7.6 billion in the fourth quarter and $5.4 billion in the first quarter of 2012.

With continued profitability, the company was able to release $50.6 billion of its valuation allowance for deferred tax assets, setting up the extraordinary dividend to the government.


Fannie in the first quarter saw an $800 million pre-tax benefit 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 pay roughly $6.75 billion to repurchase about 30,000 mortgage loans.


Fannie said the agreement "addressed $11.3 billion of unpaid principal balance, or 97 percent, of Fannie Mae's outstanding repurchase requests made to Bank of America as of December 31, 2012." Illustrating the importance of the settlement, Fannie added that Bank of America's share of Fannie's total mortgage repurchase claims against lenders declined "to 10 percent of its total repurchase requests outstanding as of March 31, 2013, compared with 73 percent of Fannie Mae's total repurchase requests outstanding as of December 31, 2012."

Uncle Sam Is Getting Paid

Fannie Mae has now paid the Treasury $95.0 billion in cash dividends since the company was taken under conservatorship. To illustrate how fat a yield that has been to the government, we can use a very conservative back-of-the-envelope calculation.

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SYM TRADE IT LAST %CHG
FNMFM $8.75 0.00%
FMCKJ $4.19 0.00%
BAC $16.73 0.00%
FNMA $2.59 0.00%
FMCC $2.49 0.00%

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