Fannie Mae-No Politics (FNMA)

[Bodach]

"The Federal Housing Finance Agency in August amended the agreements between Fannie, Freddie and the Treasury, to 'phase in a requirement for the Enterprises to pay as dividends their positive net worth every quarter.' The FHFA went on to say 'the change in the dividend structure also will affect quarterly payments to Treasury, potentially resulting in the Enterprises returning more money to federal taxpayers sooner. Indeed, because of accounting treatment, sustained profitability of the Enterprises could result in a one-time large dividend payment from each Enterprise to Treasury.'"

So both companies, Fannie and Freddie, are now profitable and earning enough to pay their preferred dividends to the government, and then some. Investors see value in the penny common stocks, with the possibility that the government-sponsored enterprises (GSEs) can be significantly recapitalized through the recapture of DTA, enabling them to redeem large portions of government-held preferred shares. If that happens, Fannie and Freddie will likely have sufficient earnings to fully repay the government.