At the beginning of April, U.S. Sen Charles Grassley sent the Treasury Department a letter asking a question that has been hovering in the minds of shareholders of Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae for years. In the letter he mentioned that as per the reports the initial loan given to the two mortgage companies by Treasury is paid off, and so the Treasury’s arrangement with the regulatory body FHFA terminate? If the answer is yes then when and if no then what is the reason?
In the response to the question, the Treasury Department said that the bailout given to Federal Home Loan and Fannie Mae was not a loan. It was an investment done by Treasury on which taxpayers’ are being compensated in the present time. The U.S. government has taken control over the two mortgage companies after the financial crisis when they took a bailout of around $187.5 billion. The government received a class of senior preferred stock in lieu for the bailout money. The stock initially paid a dividend of 10%.
In 2012, the Federal Housing Finance Agency and the Treasury, which controls Federal Home and Fannie Mae under a conservatorship, modified the terms of the deal, sending almost all of their profits to the government when they recorded earnings, but not asking a payment when they posted losses.
To date, Federal Home and Fannie Mae have paid the government over $228 billion, almost $40 billion more than bailout amount. It has provoked some of the politicians and shareholders to argue that the mortgage giants should be permitted to retain earnings, as they have repaid the bailout Treasury offered them during the financial crisis. In last trading session, the stock price of Federal Home declined 0.37% to close the trading session at $2.69.