August 8, 2013 3:40 pm
Fannie Mae doubles profits to send further $10bn to US Treasury
A surge in US house prices doubled profits at the bailed-out mortgage finance groupFannie Mae in the second quarter, meaning it will send a further $10.2bn back to the US Treasury in the coming weeks.
The company on Thursday posted net income of $10.1bn, up from $5.1bn in the second quarter of 2012.
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IN PROPERTY
The latest payment will mean that the company, which was put into government conservatorship amid the financial crisis of 2008, has returned $105.3bn in dividends to the US taxpayer, on bailout funds of $117.1bn.
“The significant and rapid increase in house prices resulted in a substantial reduction in our loss reserves,” said Timothy Mayopoulos, chief executive of Fannie Mae, on a conference call with reporters on Thursday.
With national home prices up 12 per cent year-on-year, Fannie no longer has to set aside so much money to cover potential losses on the mortgage securities it guarantees.
The company’s loss reserves fell $7.1bn between March and June to $53.1bn, down $24bn from their 2011 peak when a glut of foreclosed homes was pushing house prices down.
About 72 per cent of Fannie Mae’s portfolio is now backed by loans written since 2009, when it sharply tightened lending criteria.
These new standards, plus the improvement in the US economy, reduced the proportion of delinquent loans in the portfolio to 2.77 per cent from 3.02 per cent at the end of March and 3.53 per cent a year ago.
The US Treasury sweeps in effect all of Fannie Mae’s profits as dividends on its senior preferred stock investment in the company, an arrangement that holders of junior preferred shares are challenging in a lawsuit.
The arrangement means Fannie and its sister company Freddie Mac cannot repay the government and build capital that could then be used to return value to private investors.
On Wednesday, Freddie also reported strong earnings and, like Fannie, could have returned as much to the Treasury as it received in bailout cash by around the end of this year.
News of their bumper profits comes as political debate turns to the question of what to do with the companies, and how to recast the federal government’s role in the US mortgage market. President Barack Obama this week threw his weight behind a plan to wind them both down and replace them with a more limited government effort to insure private mortgage investors against catastrophic losses.
While the debate over its future rages, Fannie is emphasising how its work supports the availability of mortgages in the US, including for homeowners where negative equity might otherwise prevent them from refinancing their loan.
It has backed $14.5tn of loans on single-family homes since 2009, it says. However, its regulator, the Federal Home Finance Agency, requires the company to shrink its portfolio each year, in the absence of permanent reform plans from Congress.
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