Fannie, Freddie boast strong 1Q, have fully repaid taxpayers
WASHINGTON — Government-controlled mortgage financiers Fannie Mae and Freddie Mac posted solid earnings for the January-March period as the housing market continued to recover. Gains during recent quarters have enabled the companies to fully repay their taxpayer aid from being rescued by the government in 2008.
Fannie Mae reported on Thursday that it earned $5.3 billion in the first quarter. Fannie will pay a dividend of $5.7 billion to the Treasury next month. With its previous payments totaling about $121 billion, Fannie has more than repaid the $116 billion it received from taxpayers.
Freddie Mac posted net income of $4 billion for the first quarter. Freddie, based in McLean, Va., will pay a dividend of $4.5 billion to the government. Freddie had repaid its full government bailout of $71.3 billion after paying its third-quarter 2013 dividend.
The government rescued Fannie and Freddie at the height of the financial crisis in September 2008, when both veered toward collapse under the weight of losses on risky mortgages. The companies received taxpayer aid totaling $187 billion.
The gradual recovery of the housing market has made Fannie and Freddie profitable again. Their repayments of the government loans helped make last year's federal budget deficit the smallest in five years.
Fannie, 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 because of 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's $4 billion net income compares 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 said.
Under a federal policy, Fannie and Freddie must turn over their entire net worth above $2.4 billion in each quarter to the Treasury. Fannie and Freddie said their net worth in the first quarter was $8.1 billion and $6.9 billion, respectively.
Fannie and Freddie own or guarantee about half of all American mortgages, worth about $5 trillion. Along with other federal agencies, they back about 90 percent of new mortgages.
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.
President Obama has proposed a broad overhaul of the mortgage finance system — including winding down Fannie and Freddie. The goal is to replace them with a system that would put the private sector, not the government, primarily at risk for the loans.
Two key senators reached agreement in March on a plan that was endorsed by the White House.
The plan by South Dakota Democratic Sen. Tim Johnson, chairman of the banking committee, and Sen. Mike Crapo of Idaho, who is the senior Republican on the committee, would establish a new government insurance fund.