The Department of Treasury entered into agreements with Fannie Mae and Freddie Mac to make investments in senior preferred stock in each enterprise to ensure that both firms maintain a positive net worth.
Prior to 2013, the quarterly dividend amount was based on an annual rate of 10% of the value of the Treasury’s senior preferred stock. However, amendments to the Preferred Stock Purchase Agreements effected as of Aug. 17, 2012 replaced the 10% dividend with an amount equal to the GSE’s positive net worth above a capital reserve amount.
As a result of such amendments, President Barack Obama’s fiscal year 2014 budget estimates additional net dividend receipts of $183.3 billion from January 2013 through 2023.
More importantly, payments to the Treasury by the GSEs are projected to bring a savings of $51 billion through 2023.
While under the conservatorship, the enterprises have drawn $187.5 billion from Treasury and have paid back $62.5 billion in dividends.
However, the bigger question at hand is whether Fannie Mae and Freddie Mac will still exist in 2023. President Obama and active lawmakers from both sides of the fence have called for the GSEs to be gradually wound down.
Nonetheless, the return to profitability for both Fannie Mae and Freddie Mac puts a massive clog in lawmaker’s plans to taper the enterprises for a longer period of time.
Fannie Mae posted its largest annual gain with $17.2 billion of profit as a result of establishing a healthy mortgage book of business. Additionally, Freddie Mac reported net income of $11 billion as a result of the housing market turning a corner and the GSE working to minimize legacy losses.
Under the current terms of the Treasury agreement, the GSEs are allowed to retain only $3 billion in net worth. Any profits beyond that point will go to taxpayers, according to a report by the Office of the Inspector General.