Treasury says Fannie, Freddie bailout wasn’t a loan

For the last two years, shareholders of the GSEs have requested an answer about when they will stop diverting their profits to the Treasury. Now, it looks as if they have finally received an answer.

Treasury says Fannie, Freddie bailout wasn’t a loan
In early April, the head of the U.S. Senate Judiciary Committee, Sen. Charles Grassley (R-Iowa), asked federal officials to uncloak documents surrounding a 2012 decision to alter the terms of the taxpayer bailout of housing agencies Fannie Mae and Freddie Mac.

He noted in a letter to the U.S. Treasury that for the last two years, shareholders of Fannie Mae and Freddie Mac have been asking the United States government about its decision to require the government-sponsored entities (GSEs) to divert their profits to the U.S. Treasury.  And for the last two years, they haven’t received an answer.

Grassley also wrote, “the initial loan provided to Fannie and Freddie by Treasury is paid off. Will Treasury’s arrangement with FHFA terminate? If so, when? If not, why not?”

The U.S. Department of Treasury has replied, and according to the Wall Street Journal, the bailout wasn’t a loan, but an investment on which taxpayers are now being compensated.

Under the terms of the bailout by the U.S. Treasury, Fannie and Freddie are required to send their profits to the government and cannot build their capital buffer which causes many to believe that this is putting the profitability of the GSEs in jeopardy because legally they are not allowed to accumulate a financial cushion that absorbs future losses.

To date, the companies have paid the government more than $228 billion, $40 billion more than they took in the bailout.