Fannie, Freddie dividends help ease pressure on U.S. budget deficits

By Margaret Chadbourn

WASHINGTON (Reuters) - The U.S. government bailout of mortgage-finance agencies, Fannie Mae <FNMA.OB> and Freddie Mac <FMCC.OB>, in 2008 has begun to pay huge dividends for taxpayers as well as pay some political dividends in Washington.

The two agencies have returned $146 billion of their $188 billion bailout by the U.S. Treasury since 2008, helping to reduce the U.S. federal budget deficit.

In turn this has helped to delay a potentially bruising fight between Republican and Democrats over raising the government's statutory debt limit of $16.7 trillion.

The dividends from Fannie and Freddie, higher tax revenues, and the Treasury's own special cash-management measures have staved off the threat of a technical U.S. government debt default until later this year, according to private sector economists.

The contributions from Fannie and Freddie were lower than anticipated because Freddie decided not to remit nearly $30 billion in deferred tax assets to the Treasury, said Lou Crandall, chief economist at Wrightson-ICAP in Jersey City, New Jersey.

But Crandall said this will not likely change the estimated timing of when U.S. government's borrowing capacity will be exhausted because of higher-than-anticipated month-end balances in some other Treasury accounts that are being used temporarily to stay under the $16.7 trillion statutory debt limit.

"We are still looking at late October, or probably early November, when things come to a head," said Crandall, who tracks government finances closely.

Fannie Fannie Mae <FNMA.OB>, the largest U.S. mortgage finance company, said on Thursday its second-quarter profit nearly doubled to $10.1 billion, triggering a $10.2 billion dividend payment to the U.S. Treasury.

On Wednesday Freddie Mac <FMCC.OB> said its second-quarter profit surged 65 percent to $5.0 billion, its second largest ever, resulting in a $4.4 billion dividend payment to the Treasury.


On Wednesday, the Congressional Budget Office estimated that through July, the 2013 fiscal year U.S. budget deficit stood at $606 billion, a nearly 40 percent reduction from the $974 billion gap in the first 10 months of the previous fiscal year. Much of the decline is due to a 14 percent jump in tax revenues fueled by an recovering economy.

"The results through July suggest that total outlays and revenues for the fiscal year will both be slightly less than CBO projected in May, when it estimated a deficit of $642 billion for the year," the CBO said.

While the dividends from Fannie and Freddie make a difference, the big driver of the fiscal deficit reduction is higher tax revenues.

From the start of the federal fiscal year last October through June 2013, total federal tax receipts reached $2.09 trillion, according to government data, up nearly 14 percent from $1.83 trillion through the first nine months of fiscal 2012.

(Reporting by Margaret Chadbourn and David Lawder)