Freddie reports its third-quarter earnings Thursday morning and the big question is whether the GSE will finally recognize its deferred tax assets.
The DTAs were valued at $29 billion at the end of 2Q when Freddie chief executive Donald Layton told reporters that the deferred tax assets might be released in the next two quarters.
Fannie Mae recognized its deferred tax allowance in the first quarter and sent a $59 billion check to the U.S. Treasury in late June as required by its conservatorship agreement.
Freddie has been more cautious. The GSE posted earnings of $5 billion for the second quarter. But during an August conference call, Layton said he wanted to see if positive trends in earnings and the housing market continue into the second half of this year before releasing the DTAs.
Freddie is expected to post a profit for the third quarter. However, the secondary market agency has seen a decline in mortgage purchases over the third quarter as refinancings dropped off. In September, Freddie purchased just $28 billion in loans from its seller/servicers—the lowest level since April 2012.
At the same time, delinquencies on its guaranteed loan portfolio are declining. And Freddie will likely benefit from lower provisioning and release of loan loss reserves.
So it looks like a toss-up. If Layton feels optimistic and releases the DTAs, it will push the GSE closer to paying back the $72 billion in draws it received from Treasury since it was placed in conservatorship back in September 2008.
So far, Freddie has paid $41 billion in dividends. A $29 billion DTA check would push that up to $70 billion. And the regular quarterly dividend payment could push it over $72 billion.
Under Freddie's conservatorship agreement, those dividend payments don't reduce the $72 billion in draws the GSE received from Treasury. But once the $72 billion threshold is crossed, that provision is not going to stop private attorneys representing Freddie shareholders from filing lawsuits to stop the U.S. government from taking shareholder profits.
Attorneys for Fannie shareholders will be filing similar claims that Treasury is not entitled to more dividends once the draws are paid back.
