Fannie Mae, the biggest mortgage finance company under government control, said Thursday it earned a record $58.7 billion profit in the January-March quarter and that it would remain profitable for the “foreseeable future.”
Back in late 2008 when Fannie and financing sibling Freddie Mac were saved from ruin by the U.S. government, such an earnings report was unimaginable.
But a rock-steady housing market recovery was also quite unforeseen back then. Tighter lending standards, dwindling bad loans and nearly $190 billion in bailouts later, Fannie Mae and Freddie Mac have rebuilt their own financial houses — and then some.
After earning a record $58.7 billion profit in the first quarter, Fannie Mae will pay a dividend of $59.4 billion to the U.S. Treasury next month. After that clears, Fannie will have repaid $95 billion of the roughly $116 billion it received.
So large is the repayment that Treasury Secretary Jacob J. Lew said Friday that Fannie’s dividend payment to the government will help push off the effective date on which the U.S. would hit its debt limit until at least Labor Day.
Under a federal policy issued last year, Fannie and Freddie must turn over to the Treasury their entire net worth above $3 billion in each quarter. Fannie said its net worth in the first quarter was $62.4 billion.
Freddie is also profitable again. Freddie said Wednesday that it earned $4.6 billion in the first quarter and will pay a dividend of $7 billion to the Treasury next month. After Freddie’s payment clears, it will have paid back about $37 billion of the $71.3 billion it received.
Together, Fannie and Freddie finance more than half of U.S. mortgages. They purchase mortgages from lenders and sells them as bonds to investors, sealed with their guarantee against default.
An improved housing market means fewer loan delinquencies on their books. Moreover, the two entities have been charging lenders higher fees to guarantee loans, helping boost earnings.
Fannie and Freddie’s regulator, Edward DeMarco, the acting director of the Federal Housing Finance Agency, said both companies have taken steps to bring private capital back to the mortgage market.
“Since conservatorship, (Fannie and Freddie) guarantee fees have steadily increased and now are around 50 basis points, about double what they were before conservatorship,” DeMarco said during remarks before the Federal Reserve Bank of Chicago on Thursday. “A key motivation behind increasing guarantee fees is to bring their credit risk pricing closer to what would be required by private sector providers.”
The Obama Administration has delayed a detailed plan on overhauling the two entities with the intent of winding them down and shifting more toward a private-sector mortgage financing structure.
However, Fannie and Freddie’s impressive profitability has put talks of overhauling on the back burner.