Fannie Mae will return nearly $59 billion to taxpayers after booking record profits last quarter, the mortgage giant announced Thursday.
The government-controlled mortgage agency reported record pre-tax income of $8.1 billion for the first quarter, enabling it to release $58.7 billion in dividends to the Treasury. That brings the total it has returned to the government to $95 billion, a large portion of the $134 billion it received in bailout funds at the height of the recent global economic downturn.
"This is a positive sign of the recovery of the mortgage and housing market. It is good news that both Freddie Mac and Fannie Mae are returning money to the taxpayers," said Housing Policy Council President John Dalton. Freddie Mac, Fannie Mae's sister agency, said Wednesday it will repay Treasury $7 billion in dividends this quarter.
The boost for taxpayers also raises the danger, however, that the government will grow increasingly dependent on cash infusions from the mortgage finance giants and delay returning those businesses to the private sector, some legislators fear.
The cash injection this quarter enables the Treasury to avoid raising its borrowing limit for a while longer and relieves some pressure on Congress to address the federal government's debt position with a deficit reduction agreement this summer.
"I think there is a risk policymakers might look at our profitability and conclude they don't need to take action with respect to housing finance reform," said Fannie Mae Chief Executive Timothy J. Mayopoulos in announcing the quarterly profits. "I think that would be a mistake."
On Thursday, Fannie said that it applied tax credits it had saved from its losses on delinquent loans suffered during the crisis to its first-quarter earnings. By applying those credits to its 2013 taxes, Fannie reduced what it owed the government and boosted its profit.
Fannie and Freddie don't directly make loans. Rather, they buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. In doing so, they help make loans available and exert influence over the housing market.
For Fannie and Freddie, a better housing market means fewer delinquent loans on their books. The companies are also charging mortgage lenders higher fees to guarantee the loans. With more loans and higher fees, Fannie and Freddie are earning more.
Fannie and Freddie are also taking on less risk than during the pre-crisis years. That's because banks are requiring higher credit scores and larger down payments from prospective buyers.
— This article was based in part on wire service reports.
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