Fannie Mae and Freddie Mac, the housing giants whose combined $188 billion bailout dwarfed all others during the 2008 financial crisis, announced Thursday that they will return another $39 billion in dividends to the U.S. Treasury next month, bringing them close to fully repaying the taxpayers who rescued them.

Fannie Mae said it plans an $8.6 billion dividend that will bring its total payments to the Treasury in the past two years to $114 billion — $3 billion shy of its total $117 billion bailout — while Freddie Mac said a payment of $30.4 billion in dividends will more than complete the repayment of its $71 billion bailout.

Further dividends from both mortgage giants at the beginning of next year almost certainly will make taxpayers whole and turn their rescue operations into once-unimaginable cash cows for the government.

Although the two mortgage guarantee agencies technically cannot expunge their debts to the taxpayers and are still owned and controlled by the Treasury under the terms of their bailouts, the near break-even point they have achieved marks a symbolic closing of a major chapter in U.S. economic history as their bailouts were among the most dramatic, controversial and far-reaching events during the tumultuous financial crisis.

The large dividend payments to be reaped by the Treasury also highlight the important role the two mortgage giants have played in helping to sharply reduce the federal budget deficit in the past year to less than half of its $1.4 trillion peak during the crisis.

Just as the financial bailouts contributed in a big way to unprecedented budget deficits in 2008 and afterward, the return of taxpayer funds is now helping to quickly deflate them. All of the major banks have returned their bailout funds, with interest, and the Treasury is slowly recouping money shelled out to smaller banks.

Only the bailout of General Motors Co. remains as a significant loss for taxpayers, although the Treasury is expected to recoup another big chunk of the $50 billion in funds it paid two of Detroit’s Big Three automakers when it completes the sale of its remaining GM stock later this year.

“We are quickly approaching the point when taxpayers will receive a positive return on their investment in this company,” Fannie Mae Chief Executive Tim Mayopoulos said in announcing a seventh straight quarter of profitability and earnings for the once-insolvent leviathan. “That’s obviously very good news for taxpayers.”

The mortgage giants owe their profitability to the robust recovery in the housing market and refinancing boom in the past two years, which dramatically lifted sales and prices and sharply increased the fees they earn for packaging individual mortgages into mortgage-backed securities and providing a guarantee to investors.

Defaults on mortgages also are way down, meaning that the once-gigantic losses sustained by Fannie and Freddie are waning and leaving them with more profits. They also are enjoying better returns on sales from their large portfolios of foreclosed homes.

Since being burned by the crisis, Fannie and Freddie have become much more selective about the mortgages they guarantee. Because they provide backing for the lion’s share of all mortgages made today, the stricter requirements they have imposed on borrowers have quickly become standard for much of the rest of the mortgage industry.

“We’re a stronger and better-run company than we have been in years,” said Donald Layton, chief executive of Freddie Mac.

Dilemma for Congress

The growing profitability of the mortgage giants poses a dilemma for Congress and the administration.

President Obama and congressional leaders all say they want to phase out Fannie and Freddie, given their notoriety during the crisis, and turn over most of their functions to the private sector. But the sizable dividend payments streaming out each quarter pose a temptation for lawmakers who are still groping for ways to reduce huge budget deficits.

House and Senate budget negotiators are trying to find savings to replace $90 billion of automatic budget cuts scheduled to take place this fiscal year. But key members of the Senate Banking Committee have worked hard to ensure that Congress does not enshrine Fannie’s and Freddie’s dividend regime and rely on such payments to reduce the deficit in the future.

“While I’m always glad when taxpayers see a return on investment, we can’t forget that Fannie and Freddie wouldn’t be earning one penny today without the government guaranteeing their transactions. I don’t know of any other company in America that gets that kind of deal,” said Sen. Bob Corker, Tennessee Republican and co-author of a bill to phase out Fannie and Freddie and revive the private mortgage market.

Congress has been slow to move on housing reform because Fannie and Freddie, along with the Federal Housing Administration, the federal mortgage insurer, still guarantee nine out of every 10 U.S. mortgages, and lawmakers want to avoid changes that would undermine the fragile housing recovery.

While all three federal agencies have raised their guarantee fees significantly since the crisis, Mr. Corker said, they continue to undercharge for the cost of their guarantees and thus discourage competition from private mortgage insurers. At the same time, as long as Fannie and Freddie remain charges of the government, taxpayers are exposed to losses from any renewed downturn in the housing market, he said.

“It is time to move to a modernized 21st-century housing finance system,” he said. “The private sector has been almost completely priced out of the business, and a hiccup in the economy could put taxpayers on the hook for another bailout.”

Republican opposition

Many Republicans in Congress continue to blame Fannie and Freddie for causing the financial crisis, and took offense at assertions that they were close to repaying their bailouts.

Rep. Jeb Hensarling, Texas Republican and House Financial Services Committee chairman, said any notion that Fannie and Freddie can repay taxpayers is “Washington spin” and noted that legally, the mortgage agencies cannot buy back the $188 billion of stock they sold Treasury during the crisis and thus they remain on the hook to the government until Congress changes their status.

“The truth is Fannie and Freddie cost the taxpayers a whole lot more than the amount of their bailout. Their failed business model was at the epicenter of the financial crisis — a crisis that threw millions of Americans out of work and ruined people’s lives. Fannie and Freddie can never make amends for the catastrophic damage their failed business model caused our economy,” he said.

Mr. Hensarling’s committee passed a bill this year to phase out Fannie and Freddie and replace them with a private mortgage system that no longer depends on government guarantees. The Senate bill would continue to offer limited government guarantees to ensure that 30-year mortgages and other popular home financing instruments remain available to the public.

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