1 Stunning Number from the White House About Fannie Mae and Freddie Mac

The latest budget from President Obama and the White House has 1,438 pages in the appendix alone, but there is one stunning number about Fannie Mae (NASDAQOTCBB: FNMA  ) and Freddie Mac (NASDAQOTCBB: FMCC  ) that will either devastate or delight investors.


Source: Flickr / Future Atlas. 

Staggering profitability
The White House projects Fannie Mae and Freddie Mac to make $179.2 billion through the end of the 2024 fiscal year. By the end of March this year, the two government sponsored entities will have already delivered $203 billion in dividends back to the Federal government, fully eclipsing the original $187.5 billion investment the U.S. Treasury made during the financial crisis. Many questioned the viability of Fannie and Freddie in the midst of the financial crisis, but the two have rebounded to remarkable profitability.  

Even more staggering than the total of profit is the jump of those projections over the last year alone. The budget proposed last year by the White House noted it only anticipated Fannie and Freddie delivering $51 billion back to the Treasury by 2023.

Source: Flickr / 401(K) 2013

Such increases in the projections clearly highlights the turnaround the two entities have had over the last year as a result of the improved housing market. It also provides evidence why there's been so much noise from billionaire investors Bruce Berkowitz and Bill Ackman -- who have disclosed positions in the companies.

It would be easy to think this a reason for investors to pour more money in the stocks, however the budget also came with a powerful reminder.

Sobering reality
The exact language the government uses notes:

The cumulative budgetary impact of the [senior preferred stock agreements (PSPA)] from the first PSPA purchase through [fiscal year] 2024 is estimated to be a net return to taxpayers of $179.2 billion.

Note the critical distinction surrounding the net return found in the guidance provided by the White House: "to taxpayers." It provides a stark reminder Fannie and Freddie have no commitments to their investors apart from the U.S. Treasury and taxpayers in the United States.

The mission of Fannie and Freddie is stated plainly as they aim to, "provide liquidity and stability to the secondary mortgage market and to promote affordable housing."  It's a reminder they are in no way intended to generate returns to shareholders in the current state.

The latest annual report from Fannie Mae notes it is "no longer managed with a strategy to maximize shareholder returns." It also notes "the conservatorship and investment by Treasury have had, and will continue to have, a material adverse effect on our common and preferred shareholders." 

Ultimately, the thought of nearly $180 billion in profit over the next ten years is eye-popping to investors. However, unless the government does a 180° and releases these companies back to private investors, the only way to see a dime of it would be through the benefit realized as taxpayers, not investors.

One stock worth buying this year
There's a huge difference between a good stock and a stock that can make you rich, and there is no denying Fannie and Freddie had incredible runs in 2013. But there is one company that could be poised for a similar run in 2014. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (18) | Recommend This Article (35)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 11, 2014, at 1:16 PM, smauney wrote:

    And 1 stunning date from Judge Sweeney - March 20, 2014.

  • Report this Comment On March 11, 2014, at 2:10 PM, krimba2525 wrote:

    u say the same garbage every 30 days, like clock work, place fear in folks, FNMA does a huge sell off. what are your intentions? u need to be investigated with your stupid theories and live up to the standards of other REAL analysts! Chill out!

  • Report this Comment On March 11, 2014, at 3:15 PM, ffbj wrote:

    Both down huge today with threats of government wind down bill making it's way through congress.

    Essentially having the government get out of the mortgage business, well mostly, well supposedly.

    Anyhow enough to frighten the pants off of some, undoubtedly.

  • Report this Comment On March 11, 2014, at 5:11 PM, 10HighSigns wrote:

    FNMA WAS A PYRAMID SCHEME BY A FEW PROS THAT SUCKED THE PUBLIC INTO INVESTING INTO THEIR JUNK SO THEY COULD

    MAKE A BUNDLE AS AWAYS.

  • Report this Comment On March 11, 2014, at 5:12 PM, 10HighSigns wrote:

    LET'S PRAY PUTIN PUTS SOME SMARTS INTO OUR SENATE AND CONGRESS BY ELIMINATING THEM.

  • Report this Comment On March 12, 2014, at 5:51 PM, jvstretch wrote:

    Interesting, But Think About This.

    Mr (s) Dodd and Frank are no longer on the scene interferring with the policies !!!!!!!!!!!!!!!!!!!!!!

  • Report this Comment On March 12, 2014, at 6:05 PM, pinkyree wrote:

    If Republicans make progress in the next election (or maybe even if they don't!) you can bet that investors will start sucking the profits away from the taxpayers. Nobody looks after taxpayers, after all. We are just chum, chickens to be plucked, etc. Pick your analogy. Frankly, people shouldn't even be able to invest in these entities since they were completely backstopped with tax dollars. Either the mortgage market should be private or public, but not both.

  • Report this Comment On March 12, 2014, at 8:45 PM, Trumpace wrote:

    This is not a tax nor a fee. The real question is, is it legal according to the Constitution? The Government is not supposed to profit from the citizens.

    I had heard that a bill is under consideration to wind down both Fannie and Freddie. This needs to pass both houses. If not, this needs to proceed through the courts to the supreme court if necessary. The courts should only consider Constitutional Law in this case.

    But maybe I am wrong here.., if so tell me.

  • Report this Comment On March 12, 2014, at 8:48 PM, johncwick wrote:

    This article got me one step closer to closing my subscription to motley fool. The recent "profitability" has been solely a function of QE, what happens to those projections when the housing market has another downturn or better yet when the US governments' deficit is not longer financed by the Fed?

  • Report this Comment On March 12, 2014, at 10:42 PM, blowjob1234 wrote:

    Would it be funny it both Freddie Mac filed for bankruptcy.

  • Report this Comment On March 13, 2014, at 12:22 AM, PeakOilBill wrote:

    Since the taxpayers had to keep them from collapsing, they should all reap the financial benefits. The profit should go into the US Treasury, not hedge fund billionaires.

  • Report this Comment On March 13, 2014, at 7:54 AM, xetn wrote:

    Without the Fed buying all their bad debt at par, both of those lenders would have been completely bankrupt in 2008. Without the Fed creating 4 trillion new currency units since 2008, the stock market and the housing market would have both collapsed.

  • Report this Comment On March 13, 2014, at 8:54 PM, pscholte wrote:

    I don't understand the approach...other than to sell more product. Sometimes I think being foolish makes a lot of sense; other times I feel like one of PT Barnum's suckers the way I am snake oiled on this site. There are things I very much like about the Fool but others insult me.

  • Report this Comment On March 14, 2014, at 1:54 AM, maestrolindo wrote:

    Bloomberg: ‘Plain and simple,’ Congress caused the mortgage crisis, not the banks. Mayor Michael Bloomberg said this morning that if there is anyone to blame for the mortgage crisis that led the collapse of the financial industry, it's not the "big banks," but Congress. Speaking at a business breakfast in midtown featuring Bloomberg and two former New York City mayors, Bloomberg was asked what he thought of the Occupy Wall Street protesters. "I hear your complaints," Bloomberg said. "Some of them are totally unfounded. It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I'm not saying I'm sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn't have gotten them without that. "But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it's one target, it's easy to blame them and congress certainly isn't going to blame themselves. At the same time, Congress is trying to pressure banks to loosen their lending standards to make more loans. This is exactly the same speech they criticized them for."

  • Report this Comment On March 14, 2014, at 7:27 AM, duane1x wrote:

    Profitable? Who can't be profitable when you are completely backstopped by QE printed money.

    It's a completely circular transaction: Fed creates the money which it uses to purchase MBS paper. Fannie and Freddie HAVE to be profitable, by definition. Fannie and Freddie then pay dividends back to the Treasury which actually reduces the current year deficit.

    What a beautiful piece of laundering. What over-spending banana republic wouldn't want a piece fo that action?

  • Report this Comment On March 14, 2014, at 8:14 AM, whyaduck1128 wrote:

    If a number representing "profitability" comes from the White House or Congress, regardless of party, I assume it's a lie.

    What concerns me is that The Fool does not question such numbers. Is it now against official doctrine to be skeptical? Is it even allowed? Or is White House Hopey-Changey-Kumbaya Kool-Aid now the official flavor of TMF?

  • Report this Comment On March 14, 2014, at 9:04 AM, Mathman6577 wrote:

    I agree w/ whyaduck. The government is pumping up the numbers. (and Freddie and Fannie "profits" are "funny" money to begin with). Was the government right aout the ACA? No. All of their numbers were wrong on the number of people thatg would sign up, etc. Government completelyt missed the boat on the number of people who would lose coverage.

    Anyone who supports government control of any aspect of the private economy is not a capitalist and should not be providing comments on investing in the free markets.

  • Report this Comment On March 15, 2014, at 12:09 AM, ibuildthings wrote:

    Search on exactly this phrase: new-agency-proposed-to-oversee-freddie-mac

    You will get a NY Times story from ten years ago, where Pres Bush correctly accused Fannie Mae and Freddie Mac of cooking their books to hide losses. He asked Congress to authorize a new oversight and regulatory agency, because the existing Congressional oversight wasn't doing the job. All his accusations were proven and/or admitted. But read to the end, and see that Barney Frank (D-MA) and Mel Watt (D-NC) are both given the last word defending Fannie and Freddie, their purpose and their financial integrity. He tried year after year. There is YouTube video too, of Maxine Waters (D-CA) accusing Bush of racism for making these accusations, because the CEO of Fannie was Franklin Raines, a big name Democrat of African American heritage.

    Bush tried year after year. The guy they all blame for dereguation of who knows what tried to add regulation and oversight to a corrupt political enterprise.

    The final blow: When the house of cards finally crashed, those same guys blamed Bush and lack of regulation for the crash, and tripped over each other to erect the very oversight agency they blocked when Bush was pushing it. And Mel Watt (D-NC) is the guy president Obama has appointed as the new chief.

    The moral of the story: Politics trump economics and even history.

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