Fannie Mae, Freddie Mac seen dodging billions in write-offs

Earnings Boost

Both companies have reported in recent quarters that some of the increase in earnings is due to reductions in their reserves set aside to cover losses as the credit quality of the loans they back has improved.

Fannie Mae and Freddie Mac will be required to start providing quarterly estimates of the financial impact of the accounting change to FHFA and the Office of the Inspector General, Greenlee said. The agency also expects the companies to start reporting those estimates in their public financial statements, he said.

The two government-sponsored enterprises have received $187.5 billion in taxpayer aid since 2008. They’ve sent Treasury dividends totaling $132 billion, including $76 billion this year alone. Those payments count as a return on the government’s investment, not as a repayment of the aid.

President Barack Obama has called for the two companies to be wound down and replaced by a government reinsurer that would cover mortgage losses in catastrophic circumstances. Private capital would take the initial losses.

Bills Pending

Congress is also working on legislation that would liquidate them. In the Senate, Tennessee Republican Bob Corker and Virginia Democrat Mark Warner introduced a bill that would require private capital to take at least 10% of the first losses on mortgage securities. The government would step in with more aid during a financial catastrophe.

Republicans in the House of Representatives led by Jeb Hensarling of Texas are working on a bill that would eliminate Fannie Mae and Freddie Mac and limit government involvement in housing finance to the mortgage insurance provided by the Federal Housing Administration.

www.bloomberg.com

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