Back in August I talked to you about how Fannie Mae had posted record second quarter profits. Those profits resulted in a dividend being paid back to the US Treasury to help reimburse for the aid they received in 2008. Once again Fannie Mae and Freddie Mac are in the news showing that they have made substantial profits and they are even closer to having returned all of the money that they received in their bailout.
Freddie Mac took less money during the bailout than Fannie did. In fact, Freddie Mac (click the name for the loan information) got a loan of $71.3 Billion, and so far has repaid all except for $30.4 Billion back to the government. Their latest earnings report (for the period ending September 30th) shows that their latest profits will allow them to completely pay back the money they took. The company had a reported profit of $30.5 Billion, and they will return $30.4 Billion to the government.
Fannie Mae received quite a bit more in the bailout than did Freddie Mac. The total loan that went to Fannie Mae (again, hit the name to see the numbers) totaled a little over $116, and not including the return of third quarter profits they still owe $10.9 Billion. However, in the third quarter the company earned $8.7 Billion, of which $8.6 Billion will go back to the US Treasury. This leaves the existing debt between the two companies at a total of $2.3 Billion.
The original agreement between the US Government and the mortgage giants would have had them repaying a 10% dividend each year. However, what ended up happening was that they had to borrow money to pay their dividend during the quarters in which the economy was still lagging. Since borrowing money to pay off debt is never a good idea, the repayment options were changed and the companies started paying back nearly all the profits (if any) they saw. Had the original 10% deal stuck, the repayment would be far behind where it is currently. But where do we go from here? The government still owns a lot of preferred stock in the two companies. Will they keep repaying? Will they be allowed to keep more of their profits? What is the next step?
Freddie Mac and Fannie Mae are doing very well this year due to the increase in home prices, low interest rates, and the fact that the economy is doing very well (despite high unemployment numbers). Unless a huge downturn in the economy hits this quarter, the original $188 Billion bailout will be repaid shortly. After that the companies should keep paying a dividend to the government, since the government still owns stock in them. Time will tell if this is actually the case.