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GSEs to Return Another $39B to Taxpayers

In the midst of an ongoing political debate surrounding their future, ""Fannie Mae"":http://www.fanniemae.com/portal/index.html and ""Freddie Mac"":http://www.freddiemac.com/ continue to see strong profits. Both GSEs put out their earnings reports Thursday, showing elevated numbers as they continue to benefit from an improving housing market.


According to its ""quarterly report"":http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2013/q32013_release.pdf, Fannie Mae brought in $8.7 billion in profits in the third quarter, marking the seventh consecutive quarter of gains. The same time last year, the mortgage giant reported a comparatively small net income of $2.6 billion.

Fannie Mae attributed its third-quarter wins to continued positive developments in home prices, which brought a reduction in the company's loan loss reserves. Numbers also saw a boost from compensatory obligations stemming from a ""settlement"":http://www.themreport.com/articles/bofa-fannie-mae-resolve-repurchase-claims-2013-01-07 with Bank of America early in the year.


Meanwhile, profits shot up to $30.5 billion at ""Freddie Mac"":http://www.freddiemac.com/investors/er/pdf/2013er-3q13_release.pdf, though most of that came from tax benefits. Pre-tax income was $6.5 billion compared to $4.9 billion last year. It was the eighth straight quarter of positive earnings and the second most profitable quarter in the company's history, Freddie Mac said.

While the quarter's figures look encouraging for two companies that not long ago relied on a taxpayer-funded bailout to get by, they noted that current growth levels are supported largely by abnormally high home price appreciation, making such gains unsustainable over the long run as prices moderate.

Still, the companies' earnings this quarter will allow them to make substantial payments to the Treasury in December--$8.6 billion from Fannie Mae and $30.4 billion from Freddie Mac--bringing them closer to having ""repaid"" the money they've drawn to stay afloat. However, the nature of the government's agreement with the GSEs means their dividend payments don't reduce prior draws.

Together, the two companies will have paid back about $185 billion to Treasury as of December, nearly equaling the $188 billion they took following the economic crash.

Despite the third-quarter reports, policymakers will likely keep on in their plans to reform the secondary market, many of which involve the ""eventual phasing out"":http://www.themreport.com/articles/senators-bipartisan-gse-reform-bill-gaining-momentum-2013-09-19 of the two GSEs. For now, though, taxpayers are that much closer to seeing their bailout money fully repaid.

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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