This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Fannie Mae, Freddie Mac Help Uncle Sam Shrink Deficit: CBO

Stocks in this article: FNMA FMCC

NEW YORK ( TheStreet) -- The U.S. budget deficit in 2013 is projected to shrink faster than earlier thought, thanks in large part to the government's new cash cows, bailed-out housing giants Fannie Mae (FNMA) and Freddie Mac (FMCC).

The Congressional Budget Office on Tuesday said the budget deficit will shrink this year to $642 billion , the smallest shortfall since 2008. The projection was $203 billion smaller than the $845 billion shortfall forecast by CBO in February.

The budget agency said the decline in the projected deficit for 2013 "stems largely from a boost in in estimated revenues as well as from expected payments to the Treasury by Fannie Mae and Freddie Mac."

The CBO projects a $95 billion increase in estimated payments from the housing giants. The increase in estimates came after "certain accounting significantly raised the entities' estimated net worth for this year."

The revised estimates are a direct result of the turnaround in Fannie Mae and Freddie Mac, known as the GSEs.

The government-sponsored mortgage giants 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.

Both the agencies have returned to solid profitability in recent quarters on the back of the housing recovery. Fannie Mae last week reported a whopping profit of $58.7 billion , setting it up to pay a $59.4 billion dividend to the U.S. Treasury.

That profit largely stemmed from the company's release of $50.6 billion in deferred tax assets -- a tax write-off that a company can utilize only if it has a more than 50% probability of reporting a profit in the following year.

Freddie Mac also expects to release $30.6 billion in deferred tax assets as soon as the second quarter.

Fannie Mae's one-time dividend to the U.S. Treasury was so significant, Treasury Secretary Jack Lew said it would delay the deadline to raise the debt limit to at least Labor Day.

Future dividends from the GSEs will likely be smaller, but the fact is that the government is earning a handsome yield on its investment. TheStreet's Philip van Doorn calculates that the government's annual dividend yield on Fannie Mae preferreds is 16.23%.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,232.34 +163.47 0.96%
S&P 500 2,001.75 +29.01 1.47%
NASDAQ 4,619.0820 +71.2480 1.57%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs