Fannie Mae Earnings Slip 2% in First Quarter

Fannie Mae’s profit from its core mortgage financing business jumped 9.2% in the first quarter but its earnings overall dipped 2% as it recorded paper losses in hedging against risk, the company said Monday.

The government-sponsored company, which is the second-largest U.S. financial institution behind Citigroup Inc., has been under the microscope of federal regulators since an accounting scandal at smaller rival Freddie Mac erupted last spring.

Fannie Mae and Freddie Mac have grown explosively in recent years and now stand behind $4 trillion of home mortgages, representing more than three-fourths of the single-family mortgages in the country.

Washington-based Fannie Mae earned $1.9 billion, or $1.90 a share, in the January-March period, down from $1.94 billion, or $1.93, a year earlier. The company said it was accounting for losses from changes in the value of options it used to hedge against interest-rate and other risk. The paper losses were unrealized because Fannie Mae still held the underlying assets at the end of the quarter.

But profit from its central business, buying home mortgages from lenders and packaging them as securities for sale on Wall Street, rose to $2.02 billion, or $2.03 a share -- strongly besting analysts’ predictions of $1.91 a share. Its core earnings exclude fluctuations in the value of options and other financial instruments.

Fannie Mae said the rise in core earnings from a year earlier was due largely to a nearly 35% increase in the fees it collects from banks and other lenders to guarantee against default on mortgages.

“That will go away when the [refinancing] boom goes away,” said Paul Miller, an analyst at investment firm Friedman Billings Ramsey in Arlington, Va.

As long-term interest rates, including mortgage rates, have trended upward recently, the waves of mortgage refinancings of the last few years have started to recede.

The company delayed release of its quarterly balance sheet until its next periodic filing with the Securities and Exchange Commission, due May 10 -- so as to provide more “background and context,” a spokeswoman said.

It was the second quarter in a row that Fannie Mae’s mortgage portfolio declined, and the company said growth in the portfolio was likely to be negative in the second quarter.

Shares in Fannie Mae fell 38 cents to $73.83 on the New York Stock Exchange.