Fannie Mae to pay $59.4B to Treasury

May 9, 2013

Fannie Mae on Thursday said it would make a $59.4 billion payment to taxpayers as a result of its renewed financial strength, a move that budget forecasters say makes it even more likely that the deadline to raise the federal debt limit will be pushed back until around Oct. 1.

The debt limit, which Congress suspended earlier this year, is set to kick back into effect next weekend, marking the start of a political game of chicken likely to culminate in the fall, when Congress will have to give President Obama a higher limit or risk a federal default.

Many lawmakers expected another epic battle over the budget this summer. But the payment from Fannie, which had been anticipated but little noticed around Washington, is pushing back the deadline, as are other factors, including reduced spending and higher tax revenue.

Fannie was bailed out by taxpayers in 2008 and since then has received $117 billion in taxpayer infusions. With the new $59.4 billion payment, the company, which is owned and backed by taxpayers, will have paid $95 billion to the Treasury.

The money Fannie is turning over is not ordinary profit. In the depths of the financial crisis, Fannie had to effectively write down the value of tax-related assets on its balance sheet.

U.S. House Speaker John Boehner, an Ohio Republican, talks about legislation passed by the Senate this week that allows states to require out-of-state Internet retailers and catalog companies to collect sales taxes. Boehner also discusses federal budget negotiations, the Obama administration’ss economic policies and U.S. immigration law. (Source: Bloomberg) (Bloomberg)

With the recovery in the housing market and its finances, Fannie has concluded it should write up the value of those assets. That becomes a paper profit on Fannie’s balance sheet. Under the terms of the agreement with Treasury, Fannie must turn over most of its profit to taxpayers.

(Fannie recorded a record-high $8.1 billion in profit in the first quarter, derived from the company’s usual business activities: guaranteeing and investing in home loans.)

Freddie Mac, another government-backed mortgage company, may make a similar, though smaller, payment to the Treasury later this summer.

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