Fannie Mae and Freddie Mac were seized by the government at the height of the financial crisis in 2008 as mortgage losses threatened their solvency. Since then, they have drawn about $188 billion in taxpayer funds to stay afloat, while paying about $58 billion to the Treasury in dividends.
The two companies have now returned to profitability, and under the new terms, their earnings are swept into the Treasury as a dividend payment for the government's stake in the firms. If they are not profitable, no sweep is made.
Previously, the companies, which buy mortgages from lenders and repackage them as securities for investors, were required to make a 10 percent dividend payment even if they had a loss. At times, they had to borrow from the Treasury just to make the payment. Now, they simply will not be able to retain any profits.
"Ending the circularity of draws from Treasury to pay dividends will prevent the erosion of Treasury's commitment level," the Federal Housing Finance Agency's Inspector General said in a report.
"The change in the dividend structure also will affect quarterly payments to Treasury, potentially resulting in the enterprises returning more money to federal taxpayers sooner."
The two so-called government-sponsored enterprises, or GSEs, will also see changes in quarterly payments to Treasury under an accounting method where they start recording potential tax credits, known as deferred tax assets, as part of their net worth, the report concluded.
The new bailout terms, which were announced in August, were intended to move up plans to shut the companies down, but they do little to address how that might be achieved or how the government's footprint in the mortgage finance market might shrink. Fannie Mae, Freddie Mac and the Federal Housing Administration finance nine out of every ten new home loans.
Fannie Mae has already raised the possibility that it could soon be required to send about $61.5 billion to the U.S. Treasury if it begins to account for deferred tax assets. The company has delayed filing its earnings report for the fourth quarter to further study the accounting issue, but said it expects to post a significant profit.
"Indeed, because of accounting treatment, sustained profitability of the (GSEs) could result in a one-time large dividend payments to Treasury from each," the report stated.
Freddie Mac has said that in future periods it will assess the need for a reduction of its deferred tax asset valuation allowances, which could have a material effect on its financial position. The company, in its annual report, said that current conditions didn't require it to reverse any of its $31.7 billion in deferred tax assets as of the end of 2012.