Fannie Mae, the biggest backer of U.S. home loans, said it won’t need Treasury Department aid to balance its books for the first time since the company was seized by federal regulators in 2008 amid losses that pushed it to the brink of collapse.
The Washington-based mortgage financier reported net income of $2.7 billion for the first quarter, citing lower credit expenses, a decline in delinquency rates and a drop in its property inventory, according to a statement today. The company has drawn a total of $117.1 billion in aid while under U.S. conservatorship.
“Today’s results exemplify the tremendous progress we have made since 2009,” Michael J. Williams, Fannie Mae’s president and chief executive officer, said in the statement. “Our financial performance has improved significantly and we successfully limited losses on the legacy book of business through our efforts to help homeowners avoid foreclosure.”
Fannie Mae and rival government-sponsored enterprise Freddie Mac have relied on almost $190 billion in taxpayer aid to stay afloat amid losses stemming from the collapse of the subprime mortgage market. Today’s earnings report marks the first time since the September 2008 takeover that either company has been able to report a profit after paying dividends on the Treasury’s nearly 80 percent stake.
‘A Little Cautious’
“I’d be a little cautious about reading into it their having turned the corner completely,” said Clifford Rossi, a University of Maryland professor and former managing director of Citigroup Inc.’s consumer lending group. “It certainly looks good and promising for their ongoing performance, but they are nowhere near out of the woods.”
Fannie Mae reported net worth of $268 million as of March 31, reflecting total comprehensive income of $3.1 billion, partially offset by a $2.8 billion payment to Treasury. Freddie Mac last week reported a first-quarter profit of $577 million and required $19 million in aid after paying $1.81 billion in dividends to Treasury.
The two companies, which own or guarantee nearly half of mortgages on single-family homes, bundle and sell mortgages to provide liquidity for the U.S. housing market.
Susan McFarland, Fannie Mae executive vice president and chief financial officer, said in an interview that the results demonstrate her company’s earnings potential and showed that it is on a path to paying back taxpayers.
“We expect our financial results for 2012 to be significantly better than 2011,” she said. “Our credit performance is headed in the right direction with significant improvement since 2009, and we expect that the reserves we have built to cover future credit losses on the pre-2009 legacy book of business have reached their peak.”
Fannie Mae decreased loss reserves to $74.6 billion as of March 31 from $76.9 billion three months earlier. The company reported a $16.9 billion net loss for the full year of 2011.
Lawrence White, an economics professor at New York University’s Stern School of Business, said it may be a long time before the two companies, which are now essentially paying interest to Treasury, can significantly reduce their debt.
“In terms of actually diminishing the Treasury’s capital contribution, there’s a long way to go on that,” he said.