Fannie Mae and Freddie Mac Need More Government Aid

Fannie Mae and Freddie Mac Need More Government Aid

According to this Bloomberg article, Fannie, Freddie Overseer May Seek More Treasury Aid (Update2), the annual dividend payments owed by Fannie Mae and Freddie Mac (Government Sponsored Entities, or GSE's) to the US treasury exceed the total earned by both GSE's, and as a result, the GSE's are actually needing to borrow more bailout money from the US Treasury in order to pay the annual dividend payments they owe the US Treasury. Unfortunately, this sounds all to familiar. You cannot become a profitable company by borrowing more to pay your current debts. It is a recipe for more financial disaster. No doubt that this is all due to the incredibly high number of bad loans and foreclosures. The article states "Treasury and Federal Housing Finance Agency officials are also debating whether to lower the mortgage-finance companies’ dividend payments on their Treasury borrowings, according to these people, who requested not to be identified describing the internal deliberations. Fannie Mae and Freddie Mac, the largest sources of mortgage money in the U.S., have used $111.6 billion of their $400 billion in backup financing in less than a year. The companies say their 10 percent annual dividend payment, which comes to about $5 billion each, costs more than either have earned in most years and adds to their draws on Treasury." According to the article, the US treasury is considering reducing the GSE's annual dividend payments in order to prevent the need for another government bailout. This all seems like a lot of wasted time, energy and money to keep 2 insolvent GSE's from failing.

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