Fannie's $5.3B Profit Doesn't Protect Taxpayers
Despite Fannie Mae posting a profit for more than two years, the GSE’s executives said under the terms of its current operations, taxpayers remain at risk.
The conserved mortgage giant posted $5.3 billion in profits from the first quarter of 2014, according to a May 8 announcement, from a comprehensive income of $5.7 billion from the quarter.
However, Fannie Mae said it expects to pay the Treasury $5.7 billion in dividends in June 2014. The payments, required as terms of Fannie Mae’s conservatorship, prevent the institution from building up necessary capital to soften a blow from future housing downturns.
With the expected June dividend payment, Fannie Mae will have paid $126.8 billion in dividends to Treasury.
The issue came to light when Fannie Mae and Freddie Mac underwent mandated stress tests last month and revealed taxpayers would still have to make significant payments in the case of a severe market slide.
“These results of the severely adverse scenario are not surprising given the company’s limited capital,” said Kelli Parsons, Fannie Mae's chief communications officer. “Under the terms of the senior preferred stock purchase agreement, Fannie Mae is not permitted to retain capital to withstand a sudden, unexpected economic shock of the magnitude required by the stress test.”
Critical analysts have also noted that $4.1 billion of the firm's $5.3 billion first quarter profits came from one-time legal settlements in cases against banks and others involved in the creation and marketing of mortgage backed securities prior to the downturn.
Some industry analysts speculated the results will spur more legislative action on secondary mortgage market reform, but those Congressional efforts have stalled.