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Bouncing back: five years on from Fannie and Freddie
Five years ago today (6 September), the US Treasury was forced to place mortgage finance giants Fannie Mae and Freddie Mac into conservatorship, in a bid to avoid meltdown of the fragile US mortgage market during the height of the sub-prime crisis.
At the time of the conservatorship, the books of the government sponsored enterprises Fannie Mae and Freddie Mac contained a combined $1.7 trillion in unsecured debt and $3.5 trillion of mortgage guarantees. Treasury secretary Hank Paulson committed as much as US$200 billion in preferred stock and extended credit through 2009 to keep the GSEs solvent and operating.
Five years on, the US housing market has shown strong signs of recovery, providing support to the on-going US economic revival. Over the period since the bailout, the two entities received approximately $187 billion in aid and have continued to act as guarantors to eligible mortgages. In fact, Fannie Mae and Freddie Mac have increased their market share as the private sector has not yet stepped in meaningfully.
To date, combined profits at the two entities have resulted in $131 billion in dividends which have flowed back to the US treasury. Further cash is to come, with Fannie last month reporting net income of $10 billion for the second quarter, while Freddie posted $5 billion.
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