When Fannie Mae and Freddie Mac were bailed out by the U.S. Treasury, which bought enough of the firms’ senior preferred stock to bring the net worth of each up to zero, the original deal was that the Treasury, on behalf of taxpayers, would get a 10 percent return on that investment.

For some time now, Fannie, Freddie and their supporters have ballyhooed how many dollars they have paid the Treasury in dividends on that stock, but that is an incomplete statistic. The question is whether those dollars add up to a completed 10 percent return. For that to happen, the payments have to be the equivalent of retiring all the principal plus providing a 10 percent yield; this is what I call that the “10 Percent Moment.” We can easily see if this has been achieved by calculating the internal rate of return (IRR) on the Treasury’s investment. Have Fannie and Freddie at this point provided a 10 percent IRR to the Treasury or not?

The answer is that Freddie has, but Fannie, by far the larger of the two, has not.

Freddie’s net loss in the fourth quarter of 2017 means the Treasury has to put $312 million back into it to get Freddie’s capital up to zero again. This negative cash flow for Treasury will reduce its IRR on the Freddie senior preferred stock, but only to 10.7 percent. Freddie has still surpassed the 10 percent hurdle return.

On the other hand, Fannie’s fourth quarter loss means the Treasury will have to put $3.7 billion of cash back into it, dropping the Treasury’s IRR on Fannie from 9.79 percent in the fourth quarter of 2017, to 9.37 percent. That’s not so far from the hurdle, but the fact is that, as of the first quarter of 2018, Fannie has not reached the 10 Percent Moment. Fannie and its private investors need to stop complaining about paying all its profits to the Treasury until it does.

When both Fannie and Freddie achieve the 10 Percent Moment, it would be reasonable for the Treasury to consider declaring its senior preferred stock in both fully retired, in exchange for needed reforms. At that point, Fannie and Freddie’s capital will still be approximately zero. They will still be utterly dependent on the Treasury’s credit and unable to exist even for a day without it. Reforms could be agreed to between the Treasury and the Federal Housing Finance Agency (FHFA)—as conservator and therefore boss of Fannie and Freddie—and carried out without needing the reform legislation, which is so hard to achieve. There will be a new director of the FHFA in less than 11 months.

Surely a restructured deal can emerge from this combination of factors.

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