Fannie, Freddie Rake in $39.2B of Profits; Plan Hefty Refunds to U.S.

Government-run mortgage giants Fannie Mae and Freddie Mac revealed on Thursday they hauled in hefty combined third-quarter profits of $39.2 billion thanks to the improving housing market and accounting measures.

The announcement means the mortgage heavyweights, which were taken over by the government as the housing market cratered in 2008, can continue to return cash to taxpayers. Fannie Mae is the largest provider of U.S. residential mortgage funding.

The absence of enormous cash injections and emergence of hefty cash dividends from both Fannie and Freddie has helped fuel the shrinking U.S. deficit in recent quarters. In fact, Freddie Mac's big profits bring its total dividends to the government up to the level of cumulative cash draws.

Freddie Mac posted net income of $30.5 billion during the third quarter, including the $23.9 billion impact of releasing the valuation allowance on deferred tax assets. The year before, the company earned $5 billion.

On a pre-tax income basis, Freddie said it earned $6.5 billion, up from $4.9 billion the year prior.

Freddie Mac cited higher non-interest income thanks to gains on its mortgage-related investment portfolio, gains on multifamily mortgage loans and settlement proceeds.

The company also said the “strong” rise in home prices has boosted results, but warned it expects home-price growth to “moderate in future periods,” making its recent level of earnings unsustainable.

Still, Freddie Mac said it will pay the U.S. Treasury Department $30.4 billion in December 2013, raising its total dividend payouts to $71.35 billion, compared with cumulative cash draws of $71.34 billion. The government still holds $72.3 billion of senior preferred stock.

Marking its seventh consecutive quarterly profit, Fannie Mae said it earned $8.7 billion in the third quarter, up from just $1.8 billion the year before.

Management cited higher credit-related income thanks to rising home prices, which cut its loss reserves, as well as a decline in the number of delinquent loans and compensatory fees from Bank of America (NYSE:BAC).

Fannie said it will pay taxpayers $8.6 billion in dividends in December, raising its total dividend payout to the U.S. Treasury Department to $114 billion. The company, which hasn’t needed an influx of cash since the first quarter of 2012, noted the U.S. still holds $117.1 billion of senior preferred stock.