Fannie Mae posts $2.9B profit in 2Q; paying $2.9B dividend

AP News
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Posted: Aug 04, 2016 9:13 AM
Fannie Mae posts $2.9B profit in 2Q; paying $2.9B dividend

WASHINGTON (AP) — Fannie Mae reported net income of $2.9 billion from April through June, down from a year earlier as low interest rates brought losses for the mortgage giant on its investments.

The second-quarter results released Thursday marked the 18th straight profitable quarter for the government-controlled company.

Washington-based Fannie Mae also will pay a dividend of $2.9 billion to the U.S. Treasury next month. With that payment, Fannie will have paid a total $151.4 billion in dividends.

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

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

Fannie reported that it earned $5.3 billion in net interest income in the second quarter, down from $5.7 billion in the same period last year. The company lost $1.7 billion on derivatives, the investments it uses to hedge against swings in interest rates. Fannie said it expects to remain profitable on an annual basis for the foreseeable future, but factors such as changes in interest rates or home prices could lead to widely varying financial results from quarter to quarter or year to year.

Record-low interest rates this year have helped spur home purchases and boost the housing market. The Federal Reserve has been holding its key short-term rate near zero since 2008, and a statement from the Fed last week after its latest policy meeting had led many economists to conclude that a strengthening economy would lead the central bank to resume raising rates as soon as September. But after a government report last Friday showed a surprisingly lackluster economy in the second quarter, many economists said a September rate hike was now probably off the table. The Commerce Department data showed that gross domestic product — the broadest gauge of the economy — grew just 1.2 percent in the April-June period.

The Labor Department's key report on July employment will be out Friday. Economists have estimated that 175,000 jobs were added last month and that the unemployment rate dipped to 4.8 percent from 4.9 percent.

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.

On Tuesday, Freddie reported net income of $993 million for the second quarter, down from $4.2 billion a year earlier, as it also sustained losses on investments because of the decline in interest rates.

Freddie will pay a dividend of $933 million to the Treasury next month.

The housing market's recovery in the past few years has been uneven, and it has lagged behind the rest of the economy. Despite the low mortgage rates that could lure prospective homebuyers, the market has remained hampered by tight mortgage credit, rising home prices and stagnating incomes.

Affordability remains a problem and the potential for new-home sales to regain their historic average sales rate of 650,000 could be limited.