WASHINGTON – Mortgage giant Fannie Mae posted net income of $1.1 billion for the first quarter, down from a year ago as declining interest rates reduced the value of the financial instruments it uses to hedge against rate swings.
The results announced Thursday for the January-through-March period marked the 17th straight profitable quarter for the government-controlled company. The first-quarter profit compared with net income of $1.9 billion a year earlier.
Washington-based Fannie is paying a dividend of $919 million to the U.S. Treasury next month. Fannie will then have paid a total $148.5 billion in dividends, exceeding the $116 billion it received from taxpayers during the financial crisis.
The government rescued Fannie and smaller sibling Freddie Mac at the height of the crisis in September 2008.
Fannie and Freddie together own or guarantee about half of all U.S. mortgages, worth about $5 trillion. Along with other federal agencies, they back roughly 90 per cent of new home loans.
The two companies don’t directly make loans to borrowers. They buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. That helps make home loans available.
As the global economy shuddered during the first quarter and U.S. economic growth weakened, the Federal Reserve slowed the march toward higher interest rates that it signalled in December. The Fed chose last week not to raise the benchmark rate, and made clear that it isn’t in a big hurry to make the next move higher.
Fannie noted that an increasing portion of its net interest income continues to come from fees it receives from banks and other lenders for backing the mortgages they provide. That portion of income has increased as Fannie’s own mortgage holdings have shrunk and generated less income.
About two-thirds of net interest income of $4.8 billion in the first quarter came from these so-called guarantee fees, Fannie said.
Freddie reported Tuesday a net loss of $354 million for the first quarter, also mostly due to losses from derivatives used to hedge against interest-rate fluctuations. That compared with net income of $524 million in the same period of 2015.
As a result of the loss, Freddie is skipping paying a quarterly dividend to the Treasury next month. Freddie previously has paid $98.2 billion in dividends, exceeding its government bailout of $71 billion.
Under a new program announced last month by their federal regulator, Fannie and Freddie will offer mortgage relief to a total of some 33,000 borrowers who owe more than their homes are worth. Borrowers would qualify to have some of the principal on their mortgage forgiven if their loan balance is $250,000 or less and they are at least 90 days delinquent as of March 1.
Borrowers still would owe at least 15 per cent more than the homes’ value, according to the Federal Housing Finance Agency, which oversees the two companies.
A plan to phase out Fannie and Freddie and instead use mainly private insurers to backstop home loans advanced in the Senate in 2014 and was endorsed by the Obama White House. The plan would create a new government insurance fund. Investors would pay fees in exchange for insurance on mortgage securities they buy, and the government would become a last-resort loan guarantor.
The proposal has stalled in the Republican-controlled Congress, and it’s unclear whether it will be taken up after the November elections.
This version corrects spelling of Freddie Mac in fourth paragraph.