Freddie Mac Will Pay U.S. $10.4 Billion on Quarterly Profit

Freddie Mac, the U.S.-owned mortgage financier, will return $10.4 billion to the Treasury Department next month, bringing total payments to about $10 billion above what it got in aid after the 2008 credit crisis.

The McLean, Virginia-based company had net income of $8.6 billion for the quarter ended Dec. 31 and a profit of $48.7 billion for all of 2013, according to a regulatory filing today, a profit largely driven by rising home prices. Freddie Mac, which was taken into federal conservatorship in 2008 along with larger rival Fannie Mae, earned $11 billion in 2012.

“These levels of income are not sustainable,” Freddie Mac (FMCC) Chief Executive Officer Donald Layton said today on a conference call with reporters. “Several legacy items were very strongly favorable in 2013, but it is our expectation that the peak of recoveries from the recession has now been passed.”

About $23.3 billion of the Freddie Mac’s income last year is due to an accounting change in which the company began counting deferred tax credits as assets. The credits weren’t reported as assets when the company didn’t expect it would ever earn taxable income. Settlements of securities litigation accounted for another $5.5 billion.

Home-price increases, especially in populous states such as California and Florida, helped drive some of the profits. Those price increases are moderating now, the company said.

Freddie Mac is required to pay Treasury all profits in return for $71 billion in taxpayer aid it received under conservatorship. The money counts as a return on the U.S. investment and not as repayment, and there is no existing mechanism for the company to exit government control.

Unchanged Directions

Directions from the company’s regulator, the Federal Housing Finance Agency, haven’t changed since former Democratic congressman Melvin L. Watt took over as director in January, Layton said.

“The general theme so far has been a heavy degree of continuity of existing programs,” Layton said.

Freddie Mac and Washington-based Fannie Mae have now sent Treasury a combined $202.9 billion, $15.4 billion more than the $187.5 billion in government aid they received.

The companies’ reversals of fortune have complicated the debate over their future as lawmakers in both houses of Congress work on measures to wind them down.

Stakeholders including Perry Capital LLC and Fairholme Funds Inc. have sued the U.S., challenging the arrangement under which the government takes all quarterly profits from Fannie Mae (FNMA) and Freddie Mac. The lawsuits claim that Treasury is expropriating the value of its investors’ preferred shares.

Fannie Mae and Freddie Mac, which were created by the federal government before becoming publicly traded companies, buy mortgages from lenders and package them into securities on which they guarantee payments of principal and interest.

To contact the reporter on this story: Clea Benson in Washington at cbenson20@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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