Freddie’s decision yesterday to tap an additional $31 billion in aid in return for preferred stock will raise its annual dividend payment to the Treasury to $4.6 billion, a figure the McLean, Virginia-based company said may be beyond its means.
Douglas added, “This dividend obligation exceeds the annual historical earnings in most periods, and will contribute to increasingly negative cash flows in future periods. The company has posted earnings large enough to cover such a payment in only two of the past 19 years, An inability to make good on dividends may force the Treasury to raise the interest, write off the debt or assume full control of Freddie, which was put under government control along with its larger competitor, Fannie Mae, on Sept. 6”.
Freddie and Fannie Mae own or guarantee about $5.2 trillion of the $12 trillion U.S. residential mortgage market. Since the takeover, regulators have been pressuring the companies to offer low-cost mortgage refinancing and waive loan standards to help curb foreclosures amid the worst U.S. housing market since the Great Depression.
The conflicting demands of meeting government initiatives and pursuing profit were cited by Douglas as a reason for “significant uncertainty”
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