Fannie and Freddie Offset Reported Government Spending

The federal government took control of mortgage giants Fannie Mae and Freddie Mac (F&F) in 2008 and have bailed them out with $189 billion of taxpayer money.

Today the mortgage companies have returned to profitability and are paying the government dividends. All profits earned by the companies since August 2012 are going to the federal government, as discussed by the CRS and the Washington Post.

How large are the F&F dividends? You can find out from a number of data sources:

  • FHFA (Table 2) shows that Fannie has paid a cumulative $114 billion in dividends to the government, while Freddie has paid $71 billion.
  • FHFA data show that F&F together paid $131 billion in dividends in calendar 2013, which matches what BEA Table 3.2 shows for federal “income receipts from assets” (dividend portion).
  • CBO (p. 101) says that F&F dividends received by the government were $97 billion in fiscal 2013 and will be $81 billion in fiscal 2014. Curiously, the CBO does not report how large future dividends are expected to be because they account for F&F going forward based on a net subsidy approach.

Here is the important thing for budget wonks and reporters: the money now pouring into the Treasury from F&F is not counted as “revenues” but as “offsetting receipts.” Those receipts are subtracted from federal spending before the “net outlays” reported by CBO and OMB, which people may wrongly assume is total federal spending.

Thus the government was reported to have spent $3.5 trillion in fiscal 2013, but without the F&F offset spending was $3.6 trillion. It is a similar story in 2014. And without the F&F dividends, federal deficits would be about $100 billion a year greater than reported.

Looking ahead, a fear is that with the return to profitability of F&F, politicians will get hooked on the inflows of cash, particularly since it has the magical effect of reducing reported spending. Reformers should press on with privatization and severing government ties to the mortgage companies as soon as possible.

A further discussion of offsetting receipts is here. Mark Calabria discusses F&F here and here.