Weekend Economists Be Mother May 8-10, 2015

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2. Fannie Mae to pay U.S. Treasury smallest dividend in five years (HALF EMPTY?)

http://www.reuters.com/article/2015/05/07/usa-housing-idUSL1N0XY10D20150507

Government-controlled mortgage finance company Fannie Mae said on Thursday it will pay the U.S. Treasury $1.8 billion this quarter, its smallest dividend to taxpayers in five years as falling long-term interest rates hit its derivatives holdings. Fannie Mae reported a first-quarter profit of $1.9 billion, up from $1.3 billion in the fourth quarter. Fannie Mae Chief Executive Officer Timothy Mayopoulos said the company expected to be "profitable on an annual basis for the foreseeable future."

The company, together with competitor Freddie Mac, was bailed out by taxpayers in 2008 during the height of a financial crisis and housing market meltdown. Both Fannie Mae and Freddie Mac, which fund most new mortgages and are backed by taxpayer money, are unable to build up capital under the terms of the rescue. With this quarter's dividend payment, the company will have paid $138.2 billion in dividends, well above its $116.1 billion bailout. According to terms of the bailout all profits must be given to the Treasury indefinitely, a policy that shareholders in both firms are challenging in court.

A lackluster housing market and derivatives losses have weighed on Fannie Mae over the last year. Mayopoulos declined to comment on a regulator's invitation that Fannie Mae and Freddie Mac submit proposals for pay raises for their CEOs. The Federal Housing Finance Agency (FHFA) said on Tuesday such a move could help them retain talent or attract future executives. Mayopoulos said the invitation was made to the firm's board of directors, not management. Asked if he might leave the company, he said: "I don't have any plans to go anywhere."

Falling capital cushions will mean Fannie Mae and Freddie Mac will come under increasing risk that a quarterly loss could lead them to draw more money from the Treasury. Mayopoulos said changes in interest rates and home prices could lead to volatility in earnings from quarter to quarter. The FHFA warned in April that Fannie Mae and Freddie Mac could require up to $157 billion in taxpayer aid if the United States entered a severe recession.