Mortgage companies Fannie Mae, Freddie Mac post profits in 3Q; pay dividends to US Treasury

Government-controlled mortgage companies Fannie Mae and Freddie Mac posted profits for the July-September period as the U.S. housing market continued to recover. Gains in recent years have enabled them to fully repay their government aid after being rescued during the financial crisis in 2008.

Fannie Mae reported Thursday that it earned $3.9 billion in the third quarter. Washington-based Fannie will pay a dividend of $4 billion to the U.S. Treasury next month. With its previous payments totaling $134.5 billion, Fannie has more than fully repaid the $116 billion it received from taxpayers.

Freddie Mac posted net income of $2.1 billion for the latest quarter. Freddie, based in McLean, Virginia, will pay a $2.8 billion dividend to the government. Freddie will have paid $91 billion in dividends, exceeding its government bailout of $71.3 billion.

Freddie had fully repaid as of last year's third quarter, and Fannie as of the fourth quarter of 2013.

The government bailed out Fannie and Freddie at the height of the crisis in September 2008 when both veered toward collapse after piling up losses on risky mortgages in the housing market bust. Together the companies received taxpayer aid totaling $187.3 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.

The market's revival beginning in 2012 has been fitful, and housing has lagged behind the rest of the economy. The market remains hampered by tight mortgage credit, rising home prices and stagnating incomes.

Together Fannie and Freddie 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.

The latest reports of profitable quarters for Fannie and Freddie came two days after midterm elections that throw control of the Senate to Republicans. The transfer of majority power in the Senate could affect work on legislation to phase out the two companies, and instead use mainly private insurers to backstop home loans.

Two key senators reached agreement in March on a bipartisan proposal that was endorsed by the Obama White House, but it has stalled in Congress.

The senators' plan 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.

With the chairmanship and majority membership of the Senate Banking Committee expected to switch from Democrats to Republicans, lawmakers may end up reworking the proposal.

President Barack Obama has proposed a broad overhaul of the U.S. 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.

Last month, the head of the federal agency overseeing Fannie and Freddie announced an agreement between the companies and major banks that could expand lending. Mel Watt, director of the Federal Housing Finance Agency, said the deal clarifies conditions in which banks could be required to buy back mortgages they sell to Fannie and Freddie for misrepresenting the loans' risks.

Fannie's earnings of $3.9 billion in the third quarter was down 55 percent from $8.7 billion in the same period of 2013. Earnings for Fannie and Freddie can fluctuate widely due to changes in interest rates and home prices. Fannie said Thursday it expects to remain profitable "for the foreseeable future."

Freddie's net income of $2.1 billion was far smaller than the $30.5 billion it earned in the third quarter of 2013. But the year-earlier amount reflected an accounting move that allowed Freddie to capitalize on tax benefits it had saved up from its losses on mortgages during the financial crisis.

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 third quarter was $6.4 billion and $5.2 billion, respectively.