Repayment will boost Treasury coffers ahead of 18 May expiration of political deal over national debt limit

The government-backed mortgage giant Fannie Mae is to pay $59.4bn back to US taxpayers, in a move that is likely to forestall a looming battle over the federal debt limit.

The mortgage finance company announced on Thursday that it had earned a record $58.7bn from January through March, benefiting from a one-time accounting move that allowed the company to lower its tax liability, as well as the recovery in the housing market.

In 2008, the government poured about $170bn into Fannie Mae and its smaller sibling, Freddie Mac, to save them after the financial crisis. Fannie Mae received about $116bn in loans. With its latest dividend, it will have repaid about $95bn. The payment looks set to boost the Treasury's coffers as it sees off a summer of fighting over the debt limit.

The government has reached its current debt limit, of $16.4tn, but after a budget battle at the end of last year Congress moved to allow the Treasury to borrow enough money to meet its obligations. That authority expires on 18 May. Paul Dales, senior US economist at Capital Economics, said the payment was likely to give the Treasury more room for maneuver and that it would add to a series of budget measures aimed at pushing off the debt ceiling limit.

"Even if nothing is done by 18 May, the Treasury has three months or so before it starts pushing up against the limit," he said.

Sean West, head of analyst Eurasia Group's United States practice, said it was clear that next week's limit was unlikely to lead to any meaningful resolution to the US budget crisis. "People are talking about it but no one is paying attention," he said. He said the Treasury's moves, money saved from sequester budget cuts and the Fannie Mae payment would delay any further showdown over the budget to the autumn. "Initial expectations that the critical debates would start happening in July or August no longer look accurate," he said.

On Thursday, the Republican-controlled House moved to prioritize payments to bond holders and people on Social Security, should no compromise be reached on the debt ceiling and the US's defaults on its debt. "It is imperative that credit markets are supremely confident that their loans are secure," said bill sponsor Tom McClintock. The move has been attacked by Democrats, who have dubbed the proposed bill the "Pay China First Act". The White House has pledged to veto the bill.

West said political posturing over the debt limit was likely to continue over the summer while both sides positioned themselves for a solution. But he said that the chances of a so-called "grand bargain" now looked slim.

"We are not going to default and we are not going to fix the deficit," he said.

 © Guardian News and Media 2013