Never underestimate the power of a large bureaucracy trying to sustain itself. Freddie Mac (FMCC.OB) is spending hundreds of millions per year to hold onto market share instead of sending the money to the Treasury, reports the FT.
The money is going to lenders as compensation payments to make up for the fact that Freddie's MBS trade at a lower price than those of Fannie Mae (FNMA.OB). Deutsche Bank estimates it's totaled more than $2B since 2008 and Treasury is demanding changes which would unify the securities of the two GSEs. Fund managers - often limited in the amount of money they can allocated to a single security - have longed balked at the idea.
Despite the payments, Freddie's market share has declined to the low 30s from its long-term average of 40%.