By Margaret Chadbourn
WASHINGTON (Reuters) - Government-run Fannie Mae and Freddie Mac, America's biggest providers of housing finance, will send the U.S. Treasury $39.0 billion in December, leaving them within a hair of paying back their 2008 bailout.
Freddie Mac said on Thursday it will pay $30.4 billion in dividends after a multibillion-dollar tax-related windfall fueled a record profit in the third quarter.
Its larger sibling and fellow state ward Fannie Mae said it would make an $8.6 billion payment.
The companies, which own or guarantee about two-thirds of all U.S. home loans, were seized by the government at the height of the financial crisis as mortgage losses threatened their solvency. They are now seeing profits surge as housing rebounds.
When Freddie Mac makes its payment in December, it will have returned all of the $71.3 billion it received in taxpayer aid, and an additional $9 million. Fannie Mae's dividend will leave it about $2.2 billion shy of the $116.1 billion it received.
"We are quickly approaching the point when taxpayers will receive a positive return on their investment in this company," Fannie Mae Chief Executive Tim Mayopoulos told reporters during a conference call. "That's obviously very good news for taxpayers."
By early next year, taxpayers likely will have turned a profit. The two firms' bailout agreements, however, do not provide a way for them to buy back the $189 billion worth of senior preferred shares the government received in return for its aid.
Under the bailout terms, they will continue to make dividend payments as long as they are profitable.
The sizable profits the two companies have enjoyed in recent quarters have led some investors to speculate that they could be spun off again as private firms.
But Republicans and Democrats in the U.S. Congress, as well as President Barack Obama, have all called for replacing Fannie Mae and Freddie Mac with a new housing finance system. The companies provide liquidity to the mortgage market by buying loans from lenders and repackaging them as securities that they offer investors with a guarantee.
"While I'm always glad when taxpayers see a return on investment, we can't forget that Fannie and Freddie wouldn't be earning one penny today without the government guaranteeing their transactions," Republican Senator Bob Corker said in a statement. "I don't know of any other company in America that gets that kind of deal."
Plans to replace Fannie Mae and Freddie Mac have emerged in both the Senate and the House of Representatives. The bipartisan Senate bill would ensure a government backstop for the market remains in place in times of crisis, an approach favored by the Obama administration. The Republican bill in the House more sharply limits government mortgage guarantees.
EARNINGS TO REMAIN STRONG
Taking into account a decision to write up nearly $24 billion in tax-related assets, Freddie Mac's net income was $30.5 billion for the period that ended September 30.
But even its pre-tax income of $6.5 billion, which compared with net income of $2.9 billion a year earlier, showed the company on solid footing.
"We're a stronger and better run company than we have been in years," Donald Layton, Chief Executive Officer of Freddie Mac, told reporters. Freddie Mac has reported eight straight quarters of profitability.
Fannie Mae, which has posted seven straight quarterly profits, said rising home prices helped push its net income to $8.7 billion in the third quarter, up from $1.8 billion a year ago.
Both Fannie Mae and Freddie Mac had been hobbled by a four-year housing slump that sent home prices plummeting and led to record foreclosures.
But rising home prices and a drop in delinquency rates helped drive profits in the third quarter, the companies said. They were also helped by payments from banks for legal settlements relating to soured loans.
"We do expect annual earnings to remain strong for the foreseeable future," said Mayopoulos. At the same time, he cautioned that future quarters may not be as profitable, due to possible changes in home prices or interest rate fluctuations.
In addition, the companies are tightening lending standards and shrinking their mortgage portfolios, which could lead to smaller profits over the next few years.
Fannie Mae, Freddie Mac and the Federal Housing Administration have seen their share of the U.S. mortgage market balloon since the nation's housing bubble burst.
Private investors have been wary of providing financing without a government guarantee, and those agencies now fund roughly 90 percent of all new U.S. mortgages.
(Reporting by Margaret Chadbourn; Editing by Chizu Nomiyama and Andrea Ricci)