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Fannie Mae posts biggest profit since 2007

Fannie's $2.7-billion profit in the first quarter is another sign that the real estate market might have hit bottom. The housing finance firm also says it doesn't need an infusion of taxpayer cash.

May 09, 2012|By Jim Puzzanghera, Los Angeles Times
  • The improvement in Fannie Mae’s finances was triggered by a slower decline in housing prices, a lower rate of homeowners behind on their payments and fewer foreclosed homes on the company's books. Above, Fannie Mae's headquarters in Washington.
The improvement in Fannie Mae’s finances was triggered by a slower… (Karen Bleier, AFP/Getty…)

WASHINGTON — In a potential turning point for one of the biggest financial crisis bailouts, Fannie Mae reported a first-quarter profit and — for the first time since the government seized it in 2008 — does not need a quarterly infusion of taxpayer money.

The $2.7-billion profit that the giant housing finance company posted Wednesday was its largest since the housing bubble burst in 2007 and is another signal that the real estate market finally might have hit bottom.

"It's always hard to call a turn until everything is in the rear-view mirror," said Susan McFarland, Fannie Mae's chief financial officer. "It's certainly a positive indication that if we haven't turned the corner, we're pretty darn close to turning the corner because you now can see the earnings potential of the company and our ability to repay the taxpayer."

But with Fannie Mae so dependent on the fate of housing prices, it's too soon to say the company's finances are out of danger, said Bert Ely, an independent banking consultant.

Fannie Mae lost $2.4 billion in the final three months of last year and needed $4.6 billion in government money.

"We're seeing some hopeful signs, but these are like flowers that blossom in an early spring and then you get a freeze and they all wilt," Ely said. "We need to see several more quarters of data before we can read a trend into this."

Fannie Mae buys and insures mortgages and plays a crucial role in the housing finance market. It and its smaller sibling, Freddie Mac, own or back 60% of the nation's mortgages. Regulators seized Freddie at the same time they took over Fannie Mae.

The companies were brought to the brink of bankruptcy by hundreds of billions of dollars in bad mortgages they purchased or guaranteed during the housing boom.

But Fannie Mae said Wednesday that it believed its losses had peaked from those loans. The company set aside $74.6 billion at the end of the first quarter to cover future losses, down from $76.9 billion at the end of last year.

The improvement in Fannie Mae's finances was triggered by a slower decline in housing prices, a lower rate of homeowners behind on their payments and fewer foreclosed homes on the company's books.

"What we've seen is while the housing market has continued to degrade to some extent, the pace of degradation has slowed significantly," McFarland said.

The percentage of Fannie Mae loans that were more than 90 days delinquent dropped to 3.7% at the end of the first quarter, the eighth consecutive quarterly decline.

The profit was its first since Fannie Mae reported a $73-million profit in the fourth quarter of 2010. But even then, the company needed $2.6 billion from the federal government to stay afloat and to afford the 10% quarterly dividend it must pay on its bailout.

This time, Fannie Mae said it would not need government aid to cover its first-quarter expenses and forecast that its 2012 financial performance would be better.

Fannie Mae has received about $116.2 billion in taxpayer money since its takeover. It has paid about $22.6 billion back to the government in dividends, lowering the overall cost of its bailout to $93.6 billion.

Taxpayers have pumped an additional $71.3 billion into Freddie Mac, which has paid $18.3 billion in dividends back to the government.

Last week, Freddie Mac reported a $577-million profit for the first quarter, but requested $19 million from the government to bolster its finances and help make its $1.8 billion dividend payment.

Freddie Mac received $146 million in federal aid for the fourth quarter of last year, but it didn't need taxpayer money in four quarters since 2008.

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, said last fall that the total cost of the bailouts of the two companies could range from $220 billion to $311 billion, depending on how the housing market performs.

Obama administration officials have been more optimistic. The White House recently estimated that the total bailout cost would drop to $28 billion by 2022.

Ely said that the economic recovery remains sluggish and that there still are serious problems in the housing market, and a return to steep price declines would hit the finances of Fannie Mae and Freddie Mac.

"We're not out of the woods by any means," he said.

jim.puzzanghera@latimes.com

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