Mortgage giant Freddie Mac reported net income of $524 million for the first quarter, down sharply from the same period of 2014, as it sustained losses on the investments it uses to hedge against swings in interest rates.
The January-through-March results posted Tuesday marked the government-controlled company's 14th straight profitable quarter. Freddie said that although earnings show volatility, its business fundamentals are strong and continued to improve during the quarter.
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Freddie, based in McLean, Virginia, also said it will pay a dividend of $746 million to the U.S. Treasury next month. Freddie will have paid $92.6 billion in dividends, exceeding its government bailout of $71 billion.
The government rescued Freddie and larger sibling Fannie Mae at the height of the financial crisis in September 2008, after they suffered losses on 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 and Fannie profitable again, and they have fully repaid their taxpayer aid.
Freddie's first-quarter profit marked a steep drop from the $4 billion it earned in the same period of 2014. Yet the results showed improvement from the fourth quarter of last year, when Freddie's net income fell to $227 million from $8.6 billion a year earlier. Also at that time, losses on the investments Freddie uses to hedge against swings in interest rates, known as derivatives, were largely to blame.
For the first quarter, Freddie said it sustained losses on derivatives of $2.4 billion, including $1.8 billion related to accounting changes.
The decline in interest rates has continued despite the end last October of the Federal Reserve's monthly bond purchases, which had been intended to keep long-term rates low. After a winter in which growth nearly froze, the Fed downgraded its view of the economy last week and offered no sign that a rate increase might be coming soon.
Freddie and Fannie 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 said its portfolio of less-risky home loans made after 2008 continued to grow during the January-through-March period and mortgage delinquencies continued to decline.
"Our strong business momentum from last year carried into the first quarter, enabling us to again produce earnings despite a continued declining rate environment, so we can return further dividends to taxpayers," Freddie CEO Donald Layton said in a statement.
Results of annual financial "stress tests" announced last week showed that Freddie would need between $34.4 billion and $62.3 billion in additional government aid in a severe U.S. and global recession. That appeared to show an improvement from last year's stress tests, which indicated the company would require between $49.9 billion and $92.8 billion.
Fannie and Freddie are required to conduct the tests under the 2010 law that overhauled financial regulation following the crisis.
The housing market's revival beginning in 2012 has been fitful, and it has lagged behind the rest of the economy. Despite the low borrowing rates that could lure prospective homebuyers, the market has remained hampered by tight mortgage credit, rising home prices and stagnating incomes.
A plan to phase out Fannie and Freddie and instead use mainly private insurers to backstop home loans advanced in the Senate last year and was endorsed by the Obama 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 November elections.