Treasury changes payback terms for Fannie, Freddie

The US Treasury on Friday announced new terms for mortgage financiers Fannie Mae and Freddie Mac to refund the government for bailing them out, after both struggled to keep up with repayment commitments.

The state-backed companies had been asked each year to pay 10 percent of the combined $180 billion Treasury bailout.

But since both have been mostly unprofitable since the crisis, the Treasury has been pumping in more cash so that both can meet the repayment schedule.

In the new deal revealed Friday, the government will forego the 10 percent fixed dividend and simply sweep up all profits generated by the two companies each quarter.

But it will also mean no retained profits for the companies, making it impossible for them to expand their business.

At the same time, both will face an accelerated plan to reduce the size of their investment portfolios, which currently total half or more of the country's home loans.

The Treasury said it will require both Fannie and Freddie to reduce their mortgage investment portfolios by 15 percent annually, to meet a government-set target size of $250 billion.

The deal will "make sure that every dollar of earnings each firm generates is used to benefit taxpayers, and support the continued flow of mortgage credit during a responsible transition to a reformed housing finance market."

Savaged during the financial and housing industry crisis of 2007-2008, both companies were taken over by the government, leaving them targets of critics who say the government should not be the dominant player in the commercial mortgage industry.

Fannie Mae, the larger of the two, reported profits in the last quarter high enough to make the dividend payment for the period. But it also warned that over the long term it did not expect it would be able to generate enough profit to meet the 10 percent dividend obligation.