The US Treasury revamped the bailout of Fannie Mae and Freddie Mac yesterday to curb chances the giant mortgage finance firms could emerge from government control as the powerful, profit-driven corporations they once were.
The treasury said it would require the companies, whose massive losses threatened the financial system after the housing bubble burst, to shrink their investment portfolios more quickly and return profits to taxpayers.
Under the previous bailout terms, the companies, which buy mortgages from lenders and repackage them as securities for investors, were required to make a 10 per cent dividend payment to the treasury.
At times, they have had to borrow from the treasury just to return the dividends. Now, they won’t be able to retain any profits.
Fannie Mae and Freddie Mac have drawn $188 billion in taxpayer funds to stay afloat, while paying more than $45 billion in dividends. Next year, the treasury’s unlimited support will expire when Fannie Mae’s bailout will be capped at $125 billion and Freddie Mac’s at $149 billion. – (Reuters)
