Fannie Mae posts $3.2B profit in 3Q; paying $3B dividend

WASHINGTON – Mortgage giant Fannie Mae reported net income of $3.2 billion from July through September, up from $2 billion a year earlier, as its losses declined on investments it uses to hedge against interest rate swings.

The third-quarter results released Thursday marked the 19th straight profitable quarter for the government-controlled company.

Washington-based Fannie Mae said it will pay a dividend of $3 billion to the U.S. Treasury next month. With that payment, Fannie will have paid a total $154.4 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 totalling about $187 billion. The housing market’s gradual recovery has made Fannie and Freddie profitable again.

Fannie reported that its losses on derivatives, the investments it uses to hedge against swings in interest rates, narrowed to $491 million in the third quarter from $1.7 billion in the second quarter. 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 at a record low near zero for seven years, since the onset of the financial crisis. Expectations have been building for a slight rate increase by the Fed next month, which would be its second in a year. As had been anticipated, the Fed policymakers didn’t move on rates at their meeting this week that concluded Wednesday, coming so close to Election Day. But the Fed hinted that it would raise rates soon, possibly next month.

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 per cent 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 $2.3 billion for the third quarter, following a net loss of $475 million a year earlier, as its fees from lenders for backing mortgages increased and the impact of interest rates moderated. Freddie will pay an equivalent dividend of $2.3 billion 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.