Fannie Mae and Freddie Mac post lower profits amid slowing home price
May 10, 2014, 12:00 am TWN
WASHINGTON -- U.S. government-controlled mortgage finance giants Fannie Mae and Freddie Mac reported Thursday lower first-quarter profits, with Freddie warning that profits could continue to fall amid slowing home price gains.
Fannie Mae said it had US$5.3 billion in net income in the first three months of the year, down 91 percent from a year ago. The results included US$4.1 billion in revenue from legal settlements.
Freddie Mac had a smaller year-over-year profit dip of 53 percent in the first quarter to US$4.0 billion. The company had US$3.4 billion in after-tax legal settlements.
Fannie Mae said it expects to pay US$5.7 billion in dividends to the U.S. Treasury in June, while Freddie Mac will pay US$4.5 billion.
With these dividend payments to the Treasury, Fannie Mae will have paid a total of US$126.8 billion and Freddie Mac US$86.3 billion.
Both companies' dividend payments to the Treasury have exceeded their 2008 bailout funds.
But they warned that earnings were headed lower.
“The level of earnings Freddie Mac has experienced in recent periods is not sustainable over the long term,” the McLean, Virginia-based company said.
“Freddie Mac's recent financial results, particularly the level of loan-loss provisioning, have benefited significantly from strong home price appreciation, which is beginning to moderate.”
Fannie Mae said it expects “substantially lower” net income this year compared with 2013, saying only that “net income may vary significantly from period to period.”
The sibling institutions, rescued by the government in a roughly US$180 billion bailout in 2008 after the housing market collapse and put under state conservatorship, back most of the mortgages in the United States by buying the mortgages and packaging them as securities.
The two have benefited from a recovery in the U.S. housing market and multibillion-dollar settlements in 2013 and 2014 from banks accused of misleading them about the quality of the mortgages they purchased.
Fannie Mae and Freddie Mac have been operating under the conservatorship of the Federal Housing Finance Agency since September 2008.
The FHFA, acting on their behalf, has filed 18 complaints against banks and financial institutions over the sale of toxic “subprime” mortgages. It has obtained 13 settlements.
Complaints are ongoing against Goldman Sachs, HSBC, Nomura and other banks. In late April, British bank Barclays agreed to pay US$227 million to Freddie Mac and US$53 million to Fannie Mae.
The two companies, created by Congress to provide stability, liquidity and affordability to the mortgage market, will remain under conservatorship until Congress acts to wind them down or remove government support.
Last week the FHFA reported the two mortgage finance giants underwent stress tests to see whether they were sufficiently healthy. Under an extreme scenario of severe recession, the companies could once again need a taxpayer bailout to survive.