Sweeping changes to USA tax law led to a $6.53 billion loss at Fannie Mae last quarter, putting the government-controlled mortgage company in the position of seeking cash assistance from taxpayers for the first time since it emerged from the housing crisis six years ago. "While the fourth quarter was affected by a one-time accounting charge, we expect to benefit from a lower tax rate going forward".
The $3.7 billion Fannie Mae's regulator - the Federal Housing Finance Agency - is asking the Treasury Department for would be the first cash grant given to Fannie Mae in six years. Last quarter it sent the Treasury Department $648 million. Put simply, the government required Fannie and Freddie to send nearly all of its profits to the Treasury.
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Due to the tax charge, Fannie Mae reported 2017 net income of $2.46 billion for 2017, down from $12.31 billion in 2016.
The need for a Treasury draw should be viewed in the context of how much the GSEs have paid to the USA government since their bailout: Together, Fannie Mae and Freddie Mac have paid about $90 billion more to Treasury than they received during the crisis. "As it turned out, [that money] was not enough to cover the losses it suffered in the fourth quarter thanks to the Republican tax plan", HousingWire said.
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The writedown "was an expected, one-time outcome of the tax bill and is not a reflection of our underlying business, which remains strong", Fannie Mae CEO Timothy Mayopoulos said.
The companies don't make loans to homebuyers, but rather, buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors.
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In letters to Fannie Mae and Freddie Mac this month, Watt wrote that he didn't consider the tax-cut losses "to relate to any financial instability" in the companies "either now or in the future". However, "certain factors could result in significant volatility in the company's financial results from quarter to quarter or year to year".