Fannie Mae to pay $59.4 bn to US Treasury as profit surges
10 May 2013
Bailed-out US mortgage financing giant Fannie Mae said yesterday that it will pay the Treasury $59.4 billion as dividend after reporting record profit in the first quarter on the back of increased revenue and rising home prices.
The company's pre-tax income in Q1 shot to $8.1 billion compared with the $2.7 billion for the first quarter last year and $7.6 billion in the fourth quarter.
The mortgage financier is under US conservatorship following its rescue in 2008 at the onset of the global financial crisis.
Including the release of $50.6 billion on account of valuation allowance on deferred tax assets, the company's net income for the first quarter is $58.7 billion, compared with $3.1 billion for the first quarter of 2012.
The company's net worth as at 31 March was $62.4 billion, and based on that, its dividend obligation to the Treasury will be $59.4 billion by the end of June.
After the current payment, Fannie Mae will have paid an aggregate amount of $95 billion in cash dividends to the Treasury since its conservatorship began.
Preferred stock held by the Treasury remains at $117.1 billion as dividend payment does not offset previous Treasury draws. The current terms do not allow the company to buy back the government's stake as it will continue paying dividends without being able to recover the loan amount.
Since January 2009, Fannie Mae has funded the mortgage market with approximately 3.5 trillion in liquidity which includes 10.6 million mortgage re-financings, 29 million home purchases and financing for 1.8 million units of multifamily housing.
The first quarter improvement was primarily due to strong credit results driven by an increase in home prices, a decline in the number of delinquent loans, and the company's resolution agreement with Bank of America.
The agreement with Bank of America includes a payment of $3.6 billion to Fannie Mae related to repurchase requests, and repurchase of 29,500 mortgage loans for $6.6 billion, and also an initial cash payment of $518 million in January related to mortgage insurance claims.
On the back of continued improvement in the housing market, and increase in mortgage-guarantee fees, Fannie Mae has been posting significantly improved results over the past five quarters.
Last month, Fannie Mae reported a record $17.2-billion profit for 2012 compared with a $16.9-billion loss in 2011. (See: Once-bankrupt Fannie Mae reports record $17.2 bn profit for 2012).
Rival Freddie Mac, which was also bailed out by the Treasury in similar lines, reported on Thursday a $4.6-billion profit and will have paid $36 billion after drawing $72 billion from the Treasury.
Both the companies buy mortgages from lenders and package them into securities on which they guarantee payments of principal and interest.
Further to the Treasury payments, the net cost of Fannie Mae's will be reduced to $21.1 billion, while that of Freddie Mac will become $34.7 billion.
It is believed that improved profitability of the two mortgage giants will help cut the country's deficit and also buy the Treasury and the Congress extra time before lawmakers need to raise the country's debt ceiling.
According to latest government projections, payments to the Treasury by the two companies through 2023 are likely to exceed $51 billion over the aid they received.