Fannie Mae posts $5.1-billion profit on rising home prices

WASHINGTON — Buoyed by rising home prices, Fannie Mae reported a second-quarter profit of $5.1 billion and said that for the second straight quarter it did not need more federal bailout money for that period.

The improving real estate market was the main driver of one of the most profitable quarters ever by Fannie, the huge housing finance company seized by the government in 2008 along with sister firm Freddie Mac as the collapse of the housing market pushed them near bankruptcy.

“While it is too early to declare a national housing recovery, and our results for the second half of 2012 may not be as strong as the first half, we expect our financial results in 2012 to be substantially better than the past few years,” said Fannie Mae Chief Executive Timothy J. Mayopoulos.

Fannie reported a major drop in anticipated losses from bad loans it bought or guaranteed during the subprime mortgage boom. As a result, Fannie did not have to set aside any additional money for future loan losses.


In fact, the company recouped as a credit $3 billion from its loan loss reserve, which now stands at about $68 billion, because losses in the second quarter and anticipated future write-offs fell sharply.

Fannie Mae’s upbeat earnings followed a similar report Tuesday by Freddie Mac, which posted a $3-billion second-quarter profit and also said it did not need more bailout money for that period.

The two companies, which are in government conservatorship and owned by taxpayers, have received a combined $188 billion in federal money since 2008. Fannie and Freddie have repaid about $46 billion to the Treasury in dividends, leaving taxpayers on the hook for about $142 billion.

For every quarter that neither company needs additional bailout funds, the dividend payments further reduce the amount owed to taxpayers. Fannie Mae reported a $2.7-billion profit in the first quarter, when it also did not need additional federal aid.


Combined, Fannie and Freddie own or back about 60% of all U.S. mortgages.

Fannie’s second-quarter profit was the most the company has reported since 2004, when it restated its past earnings.

“It’s probably one of the most profitable quarters the company has ever had, pre- or post-conservatorship,” said Susan McFarland, Fannie’s chief financial officer. “Most of the things that affect our bottom line, with one exception, moved in a positive direction.”

The exception was interest rates, which dropped, leading to losses on derivative securities owned by the company.


But McFarland cautioned that its quarterly earnings might not be so high in the last six months this year.

“We know in the second quarter of most years we see a better home price situation because it’s the spring selling season,” she said. “So we know that part of the improvement, not all of it, was the spring selling season.”

And although Fannie has now gone two straight quarters without needing more bailout money, McFarland would not guarantee the company would not have to ask for help again because of the dividend payments owed to the Treasury.

The second-quarter dividend payment was $2.9 billion, and the company might not make enough money in future quarters to cover it.


“I think there’s a decent likelihood that every once in a while, we won’t earn enough to cover the full amount of the dividend payment,” she said.