Fannie Mae Profit More Than Doubles

Fannie Mae, the biggest buyer of U.S. mortgages, said Wednesday that its quarterly profit more than doubled as low interest rates boosted demand for home loans and losses on its interest rate hedges declined sharply.

But the company repeated its outlook for slower growth in 2004, albeit still higher than the mortgage industry, and said profit margins would probably return to “more normal levels.”

Fannie Mae reported fourth-quarter net income rose to $2.12 billion, or $2.21 a share, from $952 million, or 94 cents, a year earlier.

Fannie Mae’s 2003 net income totaled $7.9 billion, or $7.91 a share, up more than 70% from a year ago.

The Washington-based company said fourth-quarter operating earnings, which exclude accounting of market value changes of its interest rate derivatives, rose to $1.77 billion, or $1.77 a share, from $1.67 billion, or $1.66, a year earlier.

On that basis, analysts on average had forecast that Fannie Mae would earn $1.75 a share, according to Reuters.

Fannie Mae and its smaller sibling, Freddie Mac, which were created by Congress to increase home ownership, buy home loans from lenders to free up money so they can make more loans.

Fannie Mae and Freddie Mac have been under heavy government scrutiny after Freddie Mac admitted last year to manipulating its earnings to smooth out volatility. The scandal intensified calls for the government to tighten oversight of the entire U.S. mortgage finance system and to create a tougher regulator for the two government-sponsored enterprises.

For the fourth quarter, “mark-to-market” unrealized losses on Fannie Mae’s derivatives to hedge its interest rate positions fell by $1.75 billion from a year ago. Mark-to-market refers to recognizing the market values of the hedge instruments at a particular time, although no actual losses or gains were incurred because the positions were not unwound.

Fannie Mae shares rose $2.67, or 3.66%, to $75.67, near its 52-week high on the New York Stock Exchange.