Now that Fannie Mae and Freddie Mac are profitable again and getting closer to paying back all the financial aid they received from the Treasury Department, it is going to make it harder to pass “far-reaching GSE reforms,” according to Fitch Ratings.
“With the point where the taxpayers are effectively made whole on their investment in the GSEs now in sight, we believe broad reform will be more challenging to achieve,” according to Fitch financial institutions analyst Ilya Ivashkov.
In releasing its first-quarter financial results, Fannie decided to recognize $50.6 billion in
Freddie has a DTA allowance valued at $30 billion. And Fitch believes that Freddie is likely to follow Fannie and recognize its deferred tax assets in the coming quarters.
Since they were placed in conservatorship in 2008, the GSEs have been paying quarterly dividends on the $187 billion in financial assistance or draws they received from Treasury.
Treasury crafted the assistance agreements so dividend payments don’t reduce the $187 billion that Fannie and Freddie received to escape bankruptcy. However, the fact that the GSEs are profitable and paid that much in dividends will impact the politics of GSE reform.
Fannie received $117 billion in Treasury draws and it plans to pay a cash dividend payment of $59.4 billion to Treasury in June. Considering all the quarterly dividend payments and the $50.6 billion in DTAs, total dividends paid by Fannie will represent 81% of its cumulative draw from Treasury.
“We believe the cumulative dividends paid by Fannie could exceed the $117 billion in senior preferred stock owned by the Treasury late this year or early 2014, based on current earnings run-rate,” Ivashkov says in a May 10 report.
