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Freddie to Pay Treasury $10.4B, Warns High Profits 'Not Sustainable'

FEB 27, 2014 9:55am ET
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Freddie Mac, the U.S.-owned mortgage financier, will return $10.4 billion to the Treasury Department next month, bringing total payments to about $10 billion above what it got in aid after the credit crisis.

The McLean, Virginia-based company had net income of $8.6 billion for the quarter ended Dec. 31 and a profit of $48.7 billion for all of 2013, according to a regulatory filing Thursday, a profit largely driven by rising home prices. Freddie Mac, which was taken into federal conservatorship in 2008 along with the larger Fannie Mae, earned $11 billion in 2012 and earned net income of $30.5 billion in 3Q13.

"The level of earnings we have experienced in recent periods is not sustainable over the long term," the company said in the Securities and Exchange Commission filing. "While our provision for credit losses benefited significantly from strong home price appreciation, we are beginning to see moderation in home price growth."

Freddie Mac is required to pay Treasury all profits in return for $71 billion in taxpayer aid it received under conservatorship. The money counts as a return on the U.S. investment and not as repayment, and there is no existing mechanism for the company to exit government control.

Freddie Mac and Washington-based Fannie Mae have now sent Treasury a combined $202.9 billion, $15.4 billion more than the $187.5 billion in government aid they received. Fannie earned net income of $6.5 billion in 4Q13.

The companies' reversals of fortune have complicated the debate over their future as lawmakers in both houses of Congress work on measures to wind them down.

Stakeholders including Perry Capital LLC and Fairholme Funds Inc. have sued the U.S., challenging the arrangement under which the government takes all quarterly profits from Fannie Mae and Freddie Mac. The lawsuits claim that Treasury is expropriating the value of its investors' preferred shares.

Meanwhile, Bill Ackman’s hedge fund, Pershing Square Capital Management, took stakes in Fannie Mae and Freddie Mac in November, and said it may seek talks with management, shareholders and the government.

Fannie Mae and Freddie Mac, which were created by the federal government before becoming publicly traded companies, buy mortgages from lenders and package them into securities on which they guarantee payments of principal and interest.

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