prior to fannie mae and freddie mac bailout how did they compete for funding

The government will not require a dividend payment in periods when the firms run a loss. Under the new arrangement, the government will simply take all the profits that the firms make in any quarter as a dividend payment. The changes announced Friday are aimed at avoiding the threat that Fannie and Freddie could one day exhaust their Treasury support because they did not generate enough profits to pay back their dividends. That has forced them to borrow money from the government and use that money to repay the government in periods when they didn't turn a large enough profit to cover the dividend payments. In return for that support, the government has received senior preferred shares of stock that pay a 10 percent dividend.Ĭurrently, Fannie and Freddie make dividend payments to the Treasury every quarter. The Treasury has pumped nearly $188 billion into the companies. The government rescued Fannie and Freddie in September 2008 when massive losses on risky mortgages threatened to topple them. mortgages and the government's support was seen as crucial to keep mortgage markets functioning through the financial crisis. The firms back more than half of all U.S. He said the change also 'blunts efforts to reform Fannie and Freddie by fostering the false impression they are healthy institutions that should be restored to their previous status.'įannie and Freddie both buy up mortgages made by lenders and package them into securities that are sold with a guarantee that investors will be paid even if the borrower defaults on the mortgage.

House Financial Services Chairman Spencer Bachus, R-Ala., said the administration's move would make it less likely that taxpayers would ever recoup the money spent to bail out Fannie and Freddie. 'The Obama administration should stop delaying efforts to work with Congress to end these failed institutions, protect American taxpayers and develop a sustainable long-term plan for reform.' 'Four years after (Fannie and Freddie) were taken over by the federal government, taxpayers are left holding the bag without a plan and without a clue what the future of the secondary mortgage market will look like,' said Senate Republican leader Mitch McConnell of Kentucky. Republicans in Congress, who have often clashed with Democrats over housing policies, were critical, saying the changes don't answer the more important need to overhaul how the government promotes home ownership. 'Much more work needs to be done to reform the secondary market (for mortgage-backed securities) but today's announcement helps move this process forward and ensure the taxpayers' investment is ultimately repaid,' Frank Keating, president of the banking group, said in a statement. Industry groups including the American Bankers Association and the Mortgage Bankers Association were generally supportive of the administration's action. 'With today's announcement, we are taking the next step toward responsibly winding down Fannie Mae and Freddie Mac while continuing to support the necessary process of repair and recovery of the housing market,' said Michael Stegman, who serves as Treasury Secretary Timothy Geithner's counselor on housing policy.

However, Congress hasn't yet decided how far the government's role in mortgages should be reduced. The proposal would remake decades of federal policy aimed at supporting Americans' ability to buy homes and could make home loans more expensive.

The Obama administration unveiled a plan last year to slowly dissolve Fannie and Freddie, with the goal of shrinking the government's role in the mortgage system. Under the new arrangement, the firms' portfolios can be no larger than $650 billion each at the end of this year.

Prior to fannie mae and freddie mac bailout how did they compete for funding