8/08/2013 @ 9:11AM |4,213 views

Fannie Mae's $10 Billion Profit Heading Straight To Treasury




(Photo credit: futureatlas.com)

A sharp rise in U.S. home prices helped bolster second-quarter results at Fannie Mae Fannie Mae, swelling profits to more than $10 billion.

The government-backed mortgage finance company recorded net income of $10.1 billion and comprehensive income of $10.3 billion, which Chief Executive Tim Mayopolous attributed to stable revenue and a lift from a nationwide increase in home prices.

Fannie Mae will shell out a $10.2 billion dividend on the preferred stock held by the Treasury Department, bringing its total dividends paid to Uncle Sam to $105 billion. The results come a day after Freddie Mac Freddie Mac reported second-quarter net income of $5 billion and said it will pay a $4.4 billion dividend to the government.

Stock Boom Nathan Vardi Forbes Staff

Mayopolous said Thursday a 4.1% increase in U.S. home prices during the quarter allowed the firm to reduce loan loss reserves, a trend that may ebb and flow with the pace of housing recovery.

The CEO also chimed in on the debate over housing reform, with lawmakers and President Obama making recent pitches to reform the government-sponsored enterprises (Fannie and Freddie Mac). Tuesday, Obama renewed his administration’s call t wind down the GSEs and strike a better balance between the public and private sector in the mortgage business.

“For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag,” Obama said, expressing support for a proposal that would leave a government-backed mortgage guarantor as a secondary backer of the housing market, with private sector players in the first-loss position.

Thursday, Mayopolous said that the profitability of Fannie and Freddie should not “slow the debate” about housing finance reform, but he also noted that such reform will not close down the firms immediately. “Any reform would take a number of years to achieve,” he said on a conference call with the media, a period over which Fannie expects to remain profitable.

Common shares of Fannie Mae and Freddie Mac rallied better than 10% apiece in pre-market trading Thursday.

The GSEs preferred shares are the subject of much debate. Richard Perry’s hedge fund Perry Capital and Bruce Berkowitz’s Fairholme Fund have each sued the government on the grounds that an amendment to the initial bailout that put the firms into conservatorship unfairly cuts out preferred stock owners from the dividends they deserve from a profitable Fannie and Freddie.
(See “Fairholme Fund Sues Uncle Sam Over GSEs.”)

http://www.forbes.com/sites/steveschaefer/2013/08/08/fannie-maes-10-billion-profit-heading-straight-to-treasury/