Thursday, March 10, 2011

Fannie and Freddie borrowing from government to pay government

Fannie Mae and Freddie Mac owe 10% annual dividends to the government. They don't earn enough to pay those dividends. The solution? Borrow from the government!
For the first time since the financial crisis, Fannie Mae and Freddie Mac are showing glimmers of profitability. But the two mortgage behemoths still ask the Treasury Department every quarter for billions of dollars in cash, most of it going right back out the door to pay dividends to the same U.S. agency.

The requirement that both companies pay a 10% dividend on preferred shares—which the U.S. government receives for its infusions after taking over Fannie and Freddie in 2008—costs them about $15 billion a year at the current rate. In the last two quarters, the firms have paid $7.5 billion in total dividend payments, while receiving injections of $5.7 billion to help keep them in business.

The dividends could force Fannie Mae and Freddie Mac to keep asking the Treasury Department for more money even after the companies get back into the black, helped by lower losses on mortgages and profits from newer loans. U.S. officials have said those payments are an appropriate way to repay taxpayers.
What a great way to "repay taxpayers". Fannie and Freddie really should be shut down. Thoughts?

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