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REUTERS HUGE NEWS OUT: PAYING FOR THE BAILOUT

ReutersReuters – 12 hours ago



By Margaret Chadbourn

WASHINGTON (Reuters) -

PAYING FOR THE BAILOUT'

The draft bill, first reported by Bloomberg, said revenues from a liquidation of the two companies would first be used to repay the government for its stake in the companies, with any remaining funds going to junior preferred shareholders and finally common shareholders.

The government has an 80 percent stake in each firm, with the U.S. Treasury holding about $117.1 billion in Fannie Mae senior preferred shares and $72.3 billion in Freddie Mac senior preferred shares. It also has warrants to purchase common stock.

Many analysts said it was unlikely any funds would remain beyond what would be needed to repay the government.

Investors, including some hedge funds, have been buying up both common and junior preferred shares of Fannie Mae and Freddie Mac in the hopes lawmakers will draft legislation that does not wipe out current shareholders.

Fannie Mae(fnma) and Freddie Mac have drawn almost $190 billion in taxpayer aid and, by the end of June, will have paid the Treasury about $132 billion in dividends.

The two companies buy mortgages and package them into securities, which they issue to investors with a guarantee. They also sell debt to help fund their mortgage purchases.

After years of red ink, they have now returned to profitability. The terms of their bailout do not allow them to buy back the government's stake, which means they will keep making dividend payments as long as they are profitable without ever recovering the loan amount.

(Reporting By Margaret Chadbourn; editing by Andrew Hay)


http://finance.yahoo.com/news/senators-mull-timetable-liquidating-fannie-175649731.html