Fannie Mae posts $2B profit for 3Q; paying $2.2B dividend

Results mark mortgage giant’s 15th straight profitable quarter

By Marcy Gordon
AP Business Writer

WASHINGTON (AP) — Mortgage giant Fannie Mae reported net income of $2 billion for the July-September period, down from $3.9 billion a year earlier.

The government-controlled company attributed the third-quarter decline in profit mainly to losses on the investments it uses to hedge against swings in interest rates.

Nonetheless, the results posted Thursday marked the 15th straight profitable quarter for Washington-based Fannie Mae.

Fannie said it will pay a dividend of $2.2 billion to the U.S. Treasury next month. With that payment, Fannie will have paid a total $144.8 billion in dividends.

Fannie received $116 billion from taxpayers during the financial crisis in September 2008. The government rescued Fannie and smaller sibling Freddie Mac after they suffered huge losses from risky mortgages in the housing market bust.

Together the companies received rescue loans totaling about $187 billion. The housing market’s gradual recovery has made Freddie and Fannie profitable again.

Freddie reported Tuesday a $475 million net loss for the third quarter, also due to losses on derivatives. As a result, Freddie is skipping paying a quarterly dividend to the U.S. Treasury next month. The company said the loss — compared with net income of $2.1 billion a year earlier — mainly reflected accounting measures for the losses, while its business was strong and continue to improve.

But the head of the federal agency that oversees Fannie and Freddie raised the possibility that future quarterly losses could mean they would have to receive further government aid.

Volatile interest rates and reduced capital cushions for the two companies, under their agreements with the government, “will likely make both enterprises increasingly susceptible to the possibility of quarterly losses that could result in draws” from the Treasury, Mel Watt, director of the Federal Housing Finance Agency, said in a statement Tuesday.

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 companies’ quarterly earnings can fluctuate widely due to changes in interest rates.

Fannie reported that it lost $2.6 billion on accounting for derivatives in the third quarter. The company said a majority of its interest income came from the fees it receives from banks and other lenders to guarantee the mortgages they issue. Fannie said it expects those fees to account for an increasing portion of its interest income in the future.

Fannie said it expects to remain profitable for the foreseeable future, but that earnings for this year and future years likely will be “substantially lower” than in 2014.


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