http://www.bloomberg.com/apps/news?pid=20601110&sid=a3f3k1DeSM4UFannie, Freddie Kept Off Budget, Dividends Counted
By Dawn Kopecki
Feb. 1 (Bloomberg) -- President Barack Obama’s budget blueprint for the next fiscal year excludes the $6.3 trillion in liabilities of government-controlled Fannie Mae and Freddie Mac and delays for a second time a decision on restructuring the mortgage-finance companies that were seized 17 months ago.
The companies may need $54.4 billion more in U.S. Treasury Department preferred stock purchases to stay afloat in the current year that ends Sept. 30, and $23 billion more for the next fiscal year, according to calculations made from the Obama administration’s 2011 budget proposal to Congress today.
“The administration continues to monitor the situation of the GSEs closely and will continue to provide updates on considerations for longer-term reform of Fannie Mae and Freddie Mac as appropriate,” the Obama administration said.
White House budget director Peter Orszag delayed a decision on whether to bring the companies’ $1.6 trillion in corporate debt and $4.7 trillion mortgage obligations onto the federal budget. As the director of the Congressional Budget Office, Orszag criticized the Bush administration for keeping the 2008 rescue of the government-sponsored enterprises off budget.
At the time, Orszag said “the degree of federal control over Fannie and Freddie is so strong, we are incorporating them into the federal budget.”
“We continue to be on track to release a statement in the very near future” on the GSEs, Housing and Urban Development Secretary Shaun Donovan said in a conference call with reporters today.
Market Stability
More ideas on Fannie Mae and Freddie Mac’s future may be released “in the coming weeks and months,” Michael Barr, the assistant Treasury secretary for financial institutions, said at the American Securitization Forum’s annual conference near Washington.
“We want to be sure, that as we move to reform the GSEs, we are focused on retaining strong market stability in our housing sector,” Barr said.
For now, Obama’s budget plan classifies the GSEs as “non- budgetary” items and excludes them from being counted as federal liabilities because “they are privately owned and controlled.” The administration counts $110.6 billion in taxpayer support already paid to the companies and $225 billion in GSE mortgage bonds purchased by the Treasury.
Fannie Mae rose 7 cents, or 7.3 percent, to close at $1.03 today in regular New York Stock Exchange composite trading. Freddie Mac increased 5 cents, or 4.2 percent, to $1.23.
So far, the companies have paid $6.8 billion in dividends to the Treasury on their borrowings.
Dividends
The Office of Management and Budget estimates the two will pay $18 billion in dividends in fiscal 2011 and $6.73 billion in annual dividends thereafter. The companies are required to pay an annual dividend of 10 percent on their borrowings, which Fannie Mae and Freddie Mac have separately estimated will cost at least $10 billion a year.
“They are using the Treasury’s borrowings to repay” the Treasury, said Paul Miller, a former examiner for the Federal Reserve who is now an analyst with FBR Capital Markets in Arlington, Virginia.
“They never made that much money in their heyday,” Miller said. “My guess is that Treasury and the government will come to the conclusion that the GSEs will not be able to pay this back and will begin to look at the banking industry to repay the loans.”
