WASHINGTON -- Mortgage giant Freddie Mac reported net income of $4.2 billion for the second quarter, up sharply from the same period of 2014, as it increased its purchases of home loans and sold off greater volumes of riskier mortgages.
The April-through-June results posted Tuesday marked the government-controlled company's 15th-straight profitable quarter. Freddie Mac, the Federal Home Loan Mortgage Corp., also benefited from rising interest rates.
The McLean, Va., company will pay a dividend of $3.9 billion to the U.S. Treasury next month. Freddie Mac will have paid $96.5 billion in dividends, exceeding its government bailout of $71 billion.
The government rescued Freddie Mac and larger sibling Fannie Mae, the Federal National Mortgage Association, at the height of the financial crisis in September 2008, after they suffered huge losses from risky mortgages in the housing market bust.
Together the companies received taxpayer aid totaling about $187 billion. The housing market's gradual recovery has made Freddie Mac and Fannie Mae profitable again.
Freddie Mac noted that its dividend payments go to the Treasury but do not reduce the principal of its bailout loan from the government.
Freddie Mac's second-quarter profit was up from the $1.4 billion it earned in the same period of 2014. Rising interest rates during the period enabled the company to post gains on the investments it uses to hedge against swings in rates, reversing some of the losses from previous quarters.
The record-low interest rates of recent years, with the Federal Reserve holding its key short-term rate near zero since 2008, could soon be ending their reign. Expectations have grown that sometime this year, the Fed will raise rates.
A statement the central bank issued last week after ending its latest policy meeting gave no timetable. The Fed signaled that it wants to see further economic gains and higher inflation before raising rates. Many analysts foresee the first increase next month, though Fed Chairman Janet Yellen has stressed that any increase will be driven by the latest economic data.
The Labor Department's critical report on July employment lands Friday. Economists believe the U.S. added 225,000 jobs last month.
Freddie Mac and Fannie Mae 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 home loans.
The two companies don't directly make loans 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.
Freddie Mac said its portfolio of less-risky home loans made after 2008 continued to grow during the April-through-June period.
The housing market's revival over the last three years has been fitful, and it has lagged behind the rest of the economy. Despite the low borrowing rates that could attract prospective homebuyers, the market has been slowed by tight mortgage credit, rising home prices and stagnating incomes.
A plan to phase out Fannie Mae and Freddie Mac and instead use mainly private insurers to backstop home loans advanced in the Senate last year and was endorsed by the White House. The plan would create a new government insurance fund. Investors would pay fees in exchange for insurance on mortgage securities they buy, and the government would become a last-resort loan guarantor.
No work on the proposal has been done this year in the current Congress, in which Republicans control both the House and Senate as a result of the elections last November.
Business on 08/05/2015