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Freddie Mac Turns Profit for Q4, Full Year 2014 Despite Losses from Derivatives

freddie mac profitsFreddie Mac reported another profitable quarter to end 2014, even as losses stemming from derivatives put heavy drag on the mortgage giant's earnings.

For the last three months of 2014, Freddie Mac pulled in $227 million in net income, the company said Thursday, a drop of nearly $2 billion from Q3. The sharp drop came from derivative losses, which totaled $3.4 billion for the quarter as interest rates fell.

Freddie Mac's fourth-quarter profit only make up a fraction of what it will pay to the government in March. Per the terms of its bailout agreement, the company will hand $900 million over the Treasury, bringing its total payback to $91.8 billion—nearly $20 billion more than what it was forced to draw to keep from going under.

The agreement, which was amended in 2012, stipulates that both Fannie Mae and Freddie Mac must continue paying Treasury dividends based on their net worth, even after they've repaid taxpayers in full. It remains a source of consternation for politicians, who are still grappling with how to separate the government from the mortgage market, and shareholders, who have brought suits against the government for their share of the companies' profits.

For all of 2014, Freddie Mac reported $7.7 billion in net income, a drop from $48.7 billion in 2013. Results for 2013 were boosted by an accounting charge and benefits from securities settlements. Despite the huge decline in net income, 2014 still marked the third straight year of profitability for Freddie Mac.

All things considered, 2014 "marked another year of solid financial and operating performance" for Freddie Mac, said CEO Donald Layton. He said Freddie Mac's 2014 financial performance allows the Enterprise to return $20 billion to American taxpayers.

"We made tremendous progress in materially reducing taxpayer exposure to risk, increasing market share between the GSEs through improved customer focus and service, and making our operations better through innovation and efficiency," Layton said in the company's earnings release.

Credit quality continued to improve at the GSE, with post-2008 vintages making up 60 percent of its single-family credit guarantee portfolio as of year-end.

About Author: Tory Barringer

Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington's student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News' sister publication, MReport, which focuses on mortgage banking news.

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