Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) posted earnings of $8.7 billion for the September quarter, which is its seventh straight profitable quarter. For the same period last year, Fannie Mae posted a net income of $1.8 billion. On Thursday, the mortgage giant said in a statement that it expects to remain profitable “for the foreseeable future.”
Fannie Mae earnings fueled by recovery in home prices
The Washington D.C.-based company said that an increase in home prices during the quarter fueled the earnings, which in turn allowed the company to reduce its reserves set aside for losses on mortgages.
The government-controlled company announced that it will pay a dividend of $8.6 billion to the United States Treasury next month, totaling its payment to around $114 billion.
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Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) received about $116 billion of taxpayers’ money when the government bailed it out along with Freddie Mac during the financial crisis following the losses that both of them suffered on risky mortgages. The government provided a total aid of $187 billion at that time.
Tax windfall helped Freddie Mac
Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), which is also a government-controlled mortgage firm, reported a profit of $30.5 billion for the third quarter, fueled by a tax windfall. Freddie Mac will make a $30.4 billion dividend payment to the U.S. Treasury next month. The company posted net income of $2.9 billion in the corresponding quarter of the previous year.
Fannie and Freddie, key player in mortgages
Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), instead of directly offering loans to the customers, buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. Both Fannie and Freddie Mac have rebounded after recovery in the housing segment. Also, the federal budget deficit has come to its lowest point in the previous five years after the repayment of government loans by Fannie and Freddie Mac.
Both companies guarantee more than half of the total mortgages in the United States, which total $5 trillion. Along with other federal agencies, they back roughly 90% of new mortgages.
Obama considers shutting down mortgage giants
President Barack Obama has proposed a broad refurbishment of the U.S. mortgage finance system, which includes closing down Fannie and Freddie. The main objective behind such a move is to shift the risk for loans to the private sector rather than on the government. The government will still have a say, and will be the last resort as a loan guarantor. Additionally, President Obama wants private lenders to ensure that homeowners have access to 30-year fixed mortgages.
Though laying down a perfect housing finance system is not an easy task, Obama’s plan is following the bipartisan Senate legislation. On one hand, where most House Republicans are in favor of complete privatization, Democrats demand a larger role of government.