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Uncle Sam: Fannie Mae Financial Winner

NEW YORK (TheStreet) -- The U.S. government was the big financial winner on Thursday, after Fannie Mae (FNMA) announced its first-quarter results would enable it to pay the U.S. Treasury a dividend of $59.4 billion.

Mortgage giants Fannie Mae and Freddie Mac (FMCC) -- together known as the government sponsored enterprises, or GSEs -- were taken under government conservatorship in September 2008 at the height of the credit crisis. Both GSEs were bailed out. The federal government holds $117.1 billion in senior Fannie Mae preferred shares, and $72.3 billion in senior Freddie Mac preferred shares.

Because Fannie and Freddie have been profitable for several quarters, both GSEs have stopped taking additional draws from the Treasury, effectively freezing the bailouts at the current levels. Under their amended agreement with their regulator, the Federal Housing Finance Agency and the Treasury, Fannie and Freddie are required to pay dividends to the government equal to all capital in excess of $3 billion apiece.

Fannie on Thursday reported first-quarter earnings of $58.7 billion, which included the release of $50.6 billion of its valuation allowance for deferred tax assets (DTA). The company said in its earnings release that it "expects to remain profitable for the foreseeable future," meaning the dividend gravy will continue to flow to the federal government.


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.

The company's first-quarter earnings were boosted by $800 million before taxes from the settlement of a long-term dispute with Bank of America (BAC). The Bank agreed to pay Fannie $3.6 billion in cash and pay roughly $6.75 billion to repurchase about 30,000 mortgage loans.

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."

Freddie Mac on Wednesday reported a first-quarter profit of $4.6 billion and announced it would pay a $7.0 billion dividend to the government. Freddie did not recapture any of its $30.1 billion DTA, but when it does, there will be an extraordinary dividend payment to the Treasury. Freddie has paid or announced $36.6 billion in dividends on government-held senior preferred shares so far.

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