Treasury Adviser Defends Profit Sweep At Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA)

Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) profit sweep was defended by Michael Stegman during his speech at a Goldman Sachs housing-finance conference. Stegman, a Treasury adviser, expressed his views in a response to shareholders who want to stop the sweep. These shareholders demanded that Fannie and Freddie should be allowed to rebuild capital. They should be excluded from U.S. conservatorship. Stegman called for Congress to replace the two mortgage finance companies.

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The details

Stegman said that returning these entities in the form they were before is neither practical nor a realistic consideration. The concerns about whether Federal National and Freddie may require taxpayer support have risen in recent quarters. The profits and capital cushions of two companies have shrunk in recent quarters. The Treasury adviser also said that the burden will pass to taxpayers due to recapitalization plans or new draws from the Treasury. Federal National and Freddie, which have been under government control since 2008, received $187.5 billion as bailout funds.

The agreement

Stegman stated that the financial deal that enables Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie to draw on Treasury funds when they require capital is essential to protect financial stability. It also ensures the regular flow of mortgage credit. It requires Freddie Mac and Fannie Mac to reduce their financial support until 2018. After that, the two companies would not be permitted to rebuild any capital. They have sent the Treasury around $40 billion more than what they got as bailout aid.

Liquidity needs

Federal National and Federal Home offers liquidity to the housing industry by converting mortgages into guaranteed bonds. Apart from core activities, they have retained asset portfolios of more than $400 billion each. Now, they are under regulatory pressure to reduce down it to $250 billion. There is a lot more volatility in these portfolios that can cause the two companies to demand more taxpayer assistance.

About the Author

John is a special projects and general assignment reporter, noted for breaking several exclusive stories.

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