Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC) continue to deliver big results, but shareholders are still getting zilch.


Following their third-quarter earnings announcements yesterday, Fannie Mae and Freddie Mac declared they would be returning a combined $39 billion to the U.S. Government, in the form of dividends, in December of this year.

Fannie Mae and Freddie Mac received a total of approximately $187.5 billion in cash from the Treasury Department, and have paid back a total of $185.3 billion in the form of dividends to the U.S. Government. The essential purpose of these government-sponsored entities is not to issue mortgages, but instead, to buy them from banks, and then either hold onto them and collect the payments, or bundle the mortgages together and sell certificates known as mortgage-backed securities.

The two companies have been under conservatorship of the Federal Housing Finance Agency (FHFA) since September of 2008. Although the companies were placed into conservatorship in 2008, the agreement was amended in 2012 stipulating that they are required to pay essentially all of their profits to the U.S. Treasury. This does not serve as a repayment of the initial infusion of cash, but as a return on the investment. This is due, in large part, to the U.S. Government still retaining its $117.1 billion position in Fannie Mae's senior preferred stock and $72.3 billion position in Freddie Mac.

Freddie Mac
As a result of the agreement, Freddie Mac has actually returned more to the U.S. Government than it received, as it will have paid out $71.345 billion to the U.S. Government, and it only received $71.336 billion. Its biggest payment will occur in December of this year when it issues a $30.4 billion dividend. This stems largely from a $23.9 billion benefit it received from the release of the value held in a deferred tax asset.

Excluding the income tax benefit, Freddie Mac saw significant gains in its income, which rose from $4.9 billion in the second quarter of this year, to $6.5 billion in the third quarter. This increase was due to a number of factors, but one reason was the settlement agreement it came to with Wells Fargo, Citigroup, and SunTrust, resulting in a $900 million payout. It also saw significant gains in its benefit for credit losses, indicating it does not anticipate it will lose as much money as it previously guided, as that moved $600 million, to $1.1 billion, for a gain of $500 million.

Fannie Mae
In total, Fannie Mae has paid $113.9 billion in the form of dividends to the U.S. Government, while the U.S. Treasury issued $116.1 billion in bailout funds to Fannie Mae. In the first quarter of this year, Fannie Mae released a $50.6 billion valuation allowance on a deferred tax asset and, in total, will have paid $82.4 billion to the U.S. Government in the form of dividends in 2013 alone following its $8.6 payment this quarter.

On the quarter, Fannie Mae saw its net income drop from $10.1 billion in the second quarter, to $8.7 in the third quarter, but this was almost entirely attributable to a reduction of $2.7 billion in its benefit realized for credit losses. It also saw an $800 million gain in income resulting from its foreclosed property.

Moving forward
The two companies continue to deliver profitability following the recovery of the housing market, with Fannie Mae and Freddie Mac reporting seven and eight straight profitable quarters, respectively.

Many on Wall Street, Washington, and everywhere else questioned the viability and ethical nature of Fannie Mae and Freddie Mac, following the financial crisis, which stemmed directly from the collapse of the housing market they support. However, as the recovery continues, these companies also have recovered to their immensely profitable levels. Regrettably for investors in these publicly traded companies, their interests are secondary to those of the U.S. Government. As the law reads today, they do not see a dime.