Basically the GSE'S take a quarterly charge or reversal called a Loan Loss Reserve, where the GSE'S estimate their future credit losses from the anticipated future prices of the houses underlying their MBS and mortgage loans. The FHFA pushed hard to have the GSE'S overly inflate those projected Loan Loss Reserves, which are not the ACTUAL losses but ESTIMATED.
What did the GSE'S do starting in the 3Q12 and 4Q12? THEY INCREASED THEIR QUARTERLY INCOME BY REVERSING THE LOAN LOSS RESERVES and transferred the CASH to the United States of America Treasury.
It's outrageous, first they make the GSE'S take huge NONCASH Expenses for the Loan Loss Reserves, GENERATING HUGE LOSSES THAT REQUIRED DRAWS FROM TREASURY, and then viola, they reverse it and PAY CASH TO THE US TREASURY IN RETURN FOR NOTHING!
The GSES should have been building Capital.
Also, the FHFA and UST told the GSES to write down $50B+ in tax deferred assets, this resulted in yet MORE NONCASH Losses and draws from the UST. What did the FHFA do post August 17, 2012? They allowed the GSES to write up the tax deferred assets and guess who got the $50B+ in return for NOTHING?
The 3rd one was the US DOJ timely settling with the TBTF banks that started the Great Financial Crisis with their garbage toxic PLMBS (about $50B).
From the Fannie Mae press release on 2013 Earnings:
Fannie Mae reported annual net income for 2013 of $84.0 billion, which includes the release of
the company’s valuation allowance against its deferred tax assets, and annual pre-tax income for
2013 of $38.6 billion.
• Fannie Mae reported net income of $6.5 billion for the fourth quarter of 2013, the company’s
eighth consecutive quarterly profit, and pre-tax income of $8.3 billion for the fourth quarter of
2013.
• Fannie Mae will pay Treasury $7.2 billion in dividends in March 2014. With the March dividend
payment, Fannie Mae will have paid a total of $121.1 billion in dividends to Treasury in
comparison to $116.1 billion in draw requests since 2008. Dividend payments do not offset prior
Treasury draws.
• Fannie Mae has funded the mortgage market with approximately $4.1 trillion in liquidity since
2009, enabling families to buy, refinance, or rent a home.
• Fannie Mae is supporting the housing recovery by providing access to affordable mortgages and
by helping to build a safer, transparent, and sustainable housing finance system.
• While Fannie Mae expects to be profitable for the foreseeable future, the company does not
expect to repeat its 2013 financial results, as those results were positively affected by the release
of the company’s valuation allowance against its deferred tax assets, a significant increase in
home prices during the year, and the large number of resolutions the company reached relating to
representation and warranty matters and servicing matters.
Bottom line, the Government has unclean hands here and 8 Jurors unanimously agreed.
