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

5 Years Later, Mortgage Market Still Needs Fannie Mae, Freddie Mac (Update 1)

So the conservatorship agreement left shareholders with a 20% stake in the company. Those shares plummeted to pennies on the dollar as the enormity of the bailout loomed large.

But the idea was to temporarily place the companies in conservatorship until the government could figure out how to get rid of them for good.

It was already clear back then that policymakers no longer saw a future for the old public-private model. The expensive bailout was seen as too big a price to pay for the goal of homeownership.


Under the leadership of the Federal Housing Finance Agency and its acting director Edward DeMarco, Fannie and Freddie have over the past five years set out on a path to return to profitability.

They have tightened underwriting standards tremendously. The average credit score of a borrower qualifying for a Fannie Mae loan is currently over 750.

The agencies have also more than doubled the fees they charge to guarantee loans.

These measures, along with improving credit quality thanks to the housing recovery, has led to record profits at the companies. Fannie Mae reported a profit of $10.1 billion in the second quarter of 2013, its sixth straight quarterly profit. Freddie Mac posted a profit of $5 billion in the second quarter.

Still, the path forward for the agencies is unknown. The conservatorship does not have a timeline. Until Congress decides how to wind them down, they remain in limbo.

Shareholders of Fannie Mae and Freddie Mac meanwhile are eager to see taxpayers repaid so that they can get a piece of the pie.

But there is no provision in the bailout agreement that allows the agencies to buy back the government's senior preferred stake in the company.

Under the original terms of the bailout, the companies paid a 10% cumulative dividend on the preferred shares, which often meant that they had to draw from the Treasury to pay the Treasury.

In 2012, the agreement was amended. Rather than pay a 10% dividend, the companies were required to transfer almost all their profits to the Treasury. Essentially the companies would not be able to build capital, a move seen as a step toward accelerating the wind-down of the GSEs.
3 of 6

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
FNMFM $6.70 0.00%
FNMAS $4.53 0.00%
FNMA $2.09 0.00%
FMCC $2.05 0.00%
AAPL $117.81 0.00%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs