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Fannie and Freddie – Profit Machines?

November 14, 2013

There has been a lot happening in the marketplace during recent weeks:

•Healthcare.gov – facing mounting criticism from an increasing number of parties
•Tesla’s Model S – continuing to generate headlines for all the wrong reasons
•Banks – the fines and investigations continue to pile up
•Twitter – need I say more?

All of these market-moving stories are taking place against the backdrop of the impending holiday season — holiday shopping and all of the mania that surrounds it is already being covered in business news and other retail news channels.

As always, however, it is essential to remain vigilant, monitor market stories that could impact you and your personal financial situation, and understand what these headline stories can mean for you. There is a headline story that has been brewing for several years which could very well have an enormous marketplace impact. In the midst of the housing crisis in 2008, with the economy teetering on the verge of collapse, and the housing market is free-fall, the Federal government placed Freddie Mac and Fannie Mae into conservatorship. What that has meant, in plain English, is that all of the profits that have been generated by these entities have been sent to the Treasury.

How much profit are we talking about?

The entities have returned over $113 billion to the Treasury department, which has almost brought the organizations to a break-even position. This surprising return to profitability has been driven by the stabilization and improvement in the national housing market in addition to various internal restructuring initiatives undertaken by the entities.

In recent months, and especially as the entities have approached the break-even level with regards to paying back the federal government, the remaining private shareholders in the firms have begun to agitate for change. These private shareholders, which include some of the nation’s largest banks and hedge funds, have not received any of the profits that have been generated since the entities were placed into conservatorship. Keep in mind, these two entities are involved (to some extent) with 85% of all mortgages in the United States.

And here you thought it was just a boring Tuesday in November.

Happy Reading!

http://www.cnbc.com/id/101193820
http://www.loansafe.org/current-views-on-fannie-and-freddie-reform-taking-different-paths
http://www.businessweek.com/news/2013-11-07/freddie-mac-profits-push-dividend-return-close-to-bailout-funds

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