As of June 30, Fannie will have paid Treasury $95 billion in dividend payments. Fannie's payoff: $59B sent to Feds

Fannie Mae will send its largest check yet to taxpayers this summer: $59.4 billion.

The government-owned mortgage finance company has been turning a profit in recent quarters thanks to the recovering housing market and the rapid pace of mortgage refinancings spurred on by the Federal Reserve’s cheap money policies.


On Thursday, Fannie announced the uptick in profits will allow it to take advantage of certain tax benefits on losses that were deferred as the company was taken over by the government in 2008. This boosts the company’s net worth and frees up $50.6 billion for the government under the terms of the bailout agreement.

This amount combined with the $8.1 billion first-quarter profit reported Thursday, the largest gain in its history, means the company will send the government $59.4 billion by June 30.

Freddie Mac reported a $4.6 billion gain on Wednesday, its second-highest earnings report ever. Executives said they may be able to recognize its deferred tax assets later in the summer, which could result in $30 billion more sent to the Treasury.

While the new profits spell good news for taxpayers, who have sent $187 billion to bail out the two companies, there is concern it could delay any urgency in Congress to replace the mortgage giants and build a new housing finance system that is controlled more by the private sector.

"I think there is a risk that policymakers may look at our profitability and conclude that they do not need to take action with regard to housing reform," Fannie Mae CEO Tim Mayopoulos told reporters Thursday. "I believe that would be a mistake."

Jim Vogel, an analyst at FTN Financial, said the profits will almost definitely cause problems in an already divided Congress.

“Unfortunately, these profits hurt [Fannie and Freddie] reform because they give the illusion [mortgage] finance is a great business,” Vogel said in a note to clients Thursday, noting that the gains are not being felt as much by the private market. "'Profits' are going to blind policymakers to that fact. Murky indeed."

Lawmakers on the Senate Banking and House Financial Services committees have said the new profits should not delay reform further, but with the budget already tight, keeping the continued flow of cash in place could be tempting.

"Washington could quickly get addicted to the revenue from Fannie and Freddie," Guggenheim Partners analyst Jaret Seiberg said in a note to clients.

Under the terms of the bailout agreement, Fannie and Freddie cannot get out from under government control simply by paying back the taxpayer money they have received because Treasury owns preferred shares in the company.

As of June 30, Fannie will have paid Treasury $95 billion in dividend payments under its conservatorship agreement while Treasury will still hold $117 billion in preferred shares in the company.

Should the government keep control of the companies for another 10 years, the Obama administration budget projects taxpayers could get $51 billion more back from Fannie and Freddie than the $187 billion they put into the two firms.

A Treasury Department official confirmed that the funds returned by Fannie and Freddie will be deposited into the general fund and will be factored into how long the department can continue to pay the government’s bills before running up against the debt ceiling.

The $59 billion Fannie will send, combined with the $7 billion Freddie said it would pay the Treasury by June 30, would likely push back the date when the government will breach the debt ceiling until October, if it is not raised before then, the Bipartisan Policy Center said today.

Laurie Goodman, a top analyst at Amherst Securities, said rising home prices, coupled with higher fees Fannie and Freddie charge new homebuyers, will keep the companies profitable for some time.

"I think the profits are sustainable. They have raised [fees] very, very considerably," Goodman said in an interview. "And bad loans are running off."

What to do with the cash once the dividend payments exceed the bailouts could add an unexpected dimension to the debate and has caused some to fear that the government may look to sell off its controlling stake in the two companies.

A bill introduced earlier in the year by a bipartisan group of senators led by Bob Corker (R-Tenn.) and Elizabeth Warren (D-Mass.) would prevent the Treasury Department from selling its shares in Fannie and Freddie until a new mortgage financing system is in place.

"Those are all issues for policymakers to address," Mayopoulos said.

This article first appeared on POLITICO Pro at 10:19 a.m. on May 9, 2013.