Reuters) - Revamped terms of Fannie Mae and Freddie Mac's taxpayer-funded bailout that went into effect this year will allow the mortgage finance firms to repay the Treasury sooner than would have otherwise been the case, a federal watchdog said on Wednesday.
Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) were seized by the government at the height of the financial crisis in 2008 as mortgage losses threatened their solvency. Since then, they have drawn about $188 billion in taxpayer funds to stay afloat, while paying about $58 billion to the Treasury in dividends.
The two companies have now returned to profitability, and under the new terms, their earnings are swept into the Treasury as a dividend payment for the government's stake in the firms. If they are not profitable, no sweep is made.
Previously, the companies, which buy mortgages from lenders and repackage them as securities for investors, were required to make a 10 percent dividend payment even if they had a loss. At times, they had to borrow from the Treasury just to make the payment. Now, they simply will not be able to retain any profits.
"Ending the circularity of draws from Treasury to pay dividends will prevent the erosion of Treasury's commitment level," the Federal Housing Finance Agency's Inspector General said in a report.
"The change in the dividend structure also will affect quarterly payments to Treasury, potentially resulting in the enterprises returning more money to federal taxpayers sooner."