Fannie Mae-No Politics (FNMA)

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Want everybody to read this by our love
John Carney and try to understand his logic!

Sweeping Up After Freddie's Tough Quarter
MARKETWATCH 1:30 PM ET 2/19/2015
Symbol Last Price Change
FMCC 2.91up -0.17 (-5.52%)
QUOTES AS OF 01:57:14 PM ET 02/19/2015
So much for the idea the federal government has been expropriating the profits of Freddie Mac(FMCC).

The mortgage giant, which on Thursday reported fourth-quarter results, said it would pay the government an $851 million dividend in March. That is its smallest payout to the U.S. Treasury since 2009.

A 95% year-over-year drop in Freddie's quarterly net income makes clear the company's earnings can be volatile even in a healthy housing market. That is particularly the case when interest rates move in an unexpected direction.

More important, the smaller dividend reveals how the company has actually benefited from a controversial deal between the Treasury and the Federal Housing Finance Agency in 2012. This called for the government to sweep away all of Freddie's profits, as well as those of sibling Fannie Mae, rather than take a 10% dividend payment.

Because of this, Freddie's fourth-quarter payout is half the $1.8 billion it otherwise would have had to pay. And this means Freddie won't dig a deeper hole for itself.

Back in 2011 and early 2012, when Freddie had to make the fixed dividend payment and profits fell short of what was owed, the company had to draw more bailout funds from the Treasury. That increased the total it owed the government and boosted the amount it would have to pay in future dividends.

The 2012 deal ended that vicious cycle. But the net-worth sweep became controversial in 2013 and 2014 when unexpectedly high profits at Freddie and Fannie resulted in the government receiving dividends in excess of 10% of its stake. Several shareholders filed lawsuits asking courts to overturn the 2012 deal, complaining the government was unjustly enriching itself and failing in its legal duty to act as the company's conservator.

While Freddie's results aren't likely to put an end to the controversy or the lawsuits, they demonstrate how the profit sweep actually helps Freddie stay above water.

-John Carney; 415-439-6400; [e-mail]

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