Fannie Mae Will Pay Treasury $919 Million After Reporting Profit

  • Mortgage giant had net income of $1.1 billion in first quarter
  • CEO says firm expects to be profitable for foreseeable future

Fannie Mae will make a $919 million dividend payment to the U.S. Treasury Department after reporting a first-quarter profit driven by fees for guaranteeing loans against default and credit-related income.

The U.S.-owned mortgage-finance giant had net income of $1.1 billion for the three-month period that ended March 31 compared with $2.5 billion a quarter earlier, according to a regulatory filing posted Thursday. The company’s net worth stood at $2.1 billion, above the threshold for making dividend payments under its U.S. conservatorship agreement.

Fannie Mae posted $5 billion in revenue from net interest and fees, which was partially offset by $2.8 billion in derivatives losses resulting from declining interest rates, according to the filing. The company charges lenders fees to protect against borrowers defaulting and to package mortgages into securities to be sold to investors.

“We continue to run our business well while supporting the improving housing market,” Fannie Mae Chief Executive Officer Timothy Mayopoulos said in a statement. The company said it expects to remain profitable for the foreseeable future, notwithstanding the potential for quarterly deficits resulting from market volatility and the government’s wind-down of its reserves.

Government Seizing

Fannie Mae and smaller rival Freddie Mac, which were both seized by the U.S. in 2008, provide liquidity to the housing market by buying mortgages and then packaging them into securities on which they guarantee payments of principal and interest.

They are required to pay Treasury all profits above a minimum net worth under terms established after they were seized by regulators amid losses that pushed them to the brink of collapse. The payments count as a return on the U.S. investment and not as repayment of the aid, leaving no mechanism for them to exit government control.

After reporting a $354 million first-quarter loss on Tuesday, Freddie Mac said it won’t be making a dividend payment to Treasury.

Melvin L. Watt, director of the federal regulator that has overseen the companies conservatorship since 2008, has spoken about the need for a long-promised overhaul of the U.S. housing finance system nearly a decade after a mortgage market meltdown triggered the global financial crisis.

$187.5 Billion

In a February speech at the Bipartisan Policy Center, Watt urged lawmakers to “engage in the work of thoughtful housing finance reform before we reach a crisis of investor confidence or a crisis of any other kind."

The companies’ net worth cushion is being wound down under the conservatorship and will reach zero in 2018. After that point, any quarterly loss would force them to seek aid from Treasury.

After being taken under U.S. control, Fannie Mae and Freddie Mac received aid totaling $187.5 billion, a figure exceeded by the amount of dividends they’ve paid to Treasury. Fannie Mae, which got $116.1 billion from Treasury, will have made $148.5 billion in dividend payments when it completes its next payment.

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