WASHINGTON -- Government-controlled mortgage financiers Fannie Mae and Freddie Mac posted solid earnings for the January-March period as the U.S. housing market continued to recover. Gains over recent quarters have enabled the companies to fully repay their taxpayer aid after being rescued by the government in 2008.
Fannie Mae, the Federal National Mortgage Association, reported Thursday that it earned $5.3 billion in the first quarter. Fannie Mae will pay a dividend of $5.7 billion to the U.S. Treasury next month. With its previous payments totaling about $121 billion, Fannie Mae has more than fully repaid the $116 billion it received from taxpayers.
Freddie Mac, the Federal Home Loan Mortgage Corp., posted net income of $4 billion for the first quarter. Freddie Mac, based in McLean, Va., will pay a dividend of $4.5 billion to the government. Freddie Mac already had repaid its full government bailout of $71.3 billion after paying its third-quarter 2013 dividend.
The government rescued Fannie Mae and Freddie Mac at the height of the financial crisis in September 2008 when both veered toward collapse under the weight of losses on risky mortgages. Together the companies received taxpayer aid totaling $187 billion.
The gradual recovery of the housing market has made the two mortgage financiers profitable again. Their repayments of the government loans helped make last year's federal budget deficit the smallest in five years.
Fannie Mae, which is based in the nation's capital, said its first-quarter profit was bolstered by a stable stream of revenue from the fees it charges banks and other mortgage lenders for guaranteeing home loans. The company said it expects "to remain profitable for the foreseeable future."
The $5.3 billion earnings compared with record net income of $58.7 billion in the same period of 2013. The year-ago figure was mainly attributed to a one-time accounting move that allowed the company to lower its tax liability by applying losses on delinquent mortgages to its 2013 taxes.
Freddie Mac's $4 billion net income compared with $4.6 billion in the first three months of 2013. Earnings were bolstered in the latest period by a decline in mortgage delinquencies, Freddie Mac said.
Under a federal policy, Fannie Mae and Freddie Mac must turn over their entire net worth above $2.4 billion in each quarter to the Treasury Department. Fannie Mae and Freddie Mac said their net worth in the first quarter was $8.1 billion and $6.9 billion, respectively.
The two own or guarantee about half of all U.S. mortgages, worth about $5 trillion. Along with other federal agencies, they back roughly 90 percent of new mortgages.
The two companies don't make loans directly to borrowers. They buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. That helps make loans available.
President Barack Obama has proposed a broad overhaul of the U.S. mortgage-finance system -- including winding down Fannie Mae and Freddie Mac. The goal is to replace them with a system that would put the private sector, not the government, primarily at risk for the loans.
A plan to phase out the two financiers, and instead use mainly private insurers to backstop home loans is advancing in Congress. Two key senators reached agreement in March on a plan that was endorsed by the White House.
The plan by Sen. Tim Johnson, D-S.D., chairman of the Banking Committee, and Sen. Mike Crapo of Idaho, the senior Republican on the committee, would create a new government insurance fund. Investors would pay fees in exchange for insurance on mortgage securities they buy. The government would become a last-resort loan guarantor.
Financial "stress tests" conducted by Fannie Mae and Freddie Mac's regulator found that under a severe economic scenario, an additional $190 billion in taxpayer aid could be needed for the two companies. That is a hypothetical situation and "not expected," the Federal Housing Finance Agency said in a report last month.
Business on 05/09/2014