$25B Profit on Mortgage Debt
Policy + Politics

$25B Profit on Mortgage Debt

The Treasury Department said on Monday it made a $25 billion profit on sales of mortgage-backed securities acquired during the financial crisis, part of its ongoing efforts to wind down taxpayer-financed bailout programs.

The sales were the latest indication that the multiple programs the government and Federal Reserve initiated to bail out the financial sector may turn out to be less costly than originally feared.

The Treasury bought $225 billion of MBS in 2008 and 2009 in an effort to keep the mortgage market from freezing up as private investors fled. The $250 billion it reaped from the investment reflected both principal and interest.

"The successful sale of these securities marks another important milestone in the wind-down of the government's emergency financial crisis response efforts," Treasury Assistant Secretary Mary Miller said. Miller and Matthew Rutherford, deputy assistant secretary for federal finance, as well as policy adviser Brian Zakutansky were managers for the sale.

The government purchased the mortgage debt as part of a bid to stabilize the housing industry, using funds authorized by the Housing and Recovery Act of 2008. It was one of several programs running in parallel with the Troubled Asset Relief Program, or TARP, which was set up during the administration of President George W. Bush to buy toxic assets from banks but that ended up largely as a mechanism to inject capital into financial institutions.

Many critics contend it did more to prop up Wall Street than Main Street, and anti-bailout anger helped fuel both the conservative Tea Party movement and Occupy Wall Street on the left. Treasury Secretary Timothy Geithner has argued the steps the government took helped prevent a deeper economic downturn.

Some $414 billion was paid out in TARP funds in a process that gave the government preferred stock in banks, other financial firms and some automakers in return for the public investment. Some of the preferred stock was later converted to common stock in some of the firms. A Treasury official said that to date $331 billion has been repaid, including dividends and interest earned on the preferred shares.

While the TARP program currently is $83 billion in the red, the Treasury projects losses will ultimately shrink to about $68 billion. The nonpartisan Congressional Budget Office has a lower loss estimate of $34 billion.

Taxpayers, however, also stand to lose from the bailout of mortgage finance firms Fannie MaeĀ  and Freddie Mac, which were placed into government conservatorship in 2008. The government has lost $151 billion on its investments in the two companies, but the Obama administration projects that loss will fall to $28 billion by 2022.

The Treasury began selling the mortgage securities last year. In January, it had completed sales from a separate, smaller portfolio of asset-backed securities it had acquired to boost credit availability for small businesses.

Sales from both portfolios went smoothly with little or no market disruption.