Fannie Mae posts $1.9B profit in first quarter

Fannie Mae posts $1.9B profit in first quarter

Mortgage giant Fannie Mae has reported net income of $1.9 billion for the first quarter. The net income was sharply down from the same period a year ago because of the lower fee income and larger losses on investments used to hedge against swings in interest rates.

Thursday’s results for the January-through-March period have marked the 13th straight profitable quarter for the government-controlled finance major.

Furthermore, Washington-based Fannie has also said that it will pay a dividend of $1.8 billion to the US Treasury in the coming month. After the current payment, Fannie would have paid $138.2 billion in dividends, and it will exceed the $116 billion that it received from taxpayers during the financial crisis.

Fannie and its smaller sibling Freddie Mac were rescued by the government in September 2008 when they were at the height of the crisis.

When come together, Fannie and Freddie own or guarantee around half of all US mortgages, worth about $5 trillion. They along with the other federal agencies back roughly 90% of new home loans.

Both the companies don't make loans to borrowers directly. Instead, they buy mortgages from lenders, package them as bonds, guarantee them against default and then sell them to investors making home loans available.

The drop in long-term interest rates has brought losses on derivatives, financial transactions Fannie Mae uses to hedge against rate swings.

In the first quarter, the long-term interest rates declined after a winter in which economic growth slowed sharply and the Federal Reserve downgraded its view of the economy by offering no sign that showed a rate increase might be coming soon.

Last year a plan was advanced in the Senate to phase out Fannie and Freddie and instead use mainly private insurers to backstop home loans. It was endorsed by the Obama White House.

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