Fannie Mae, the mortgage finance giant that was bailed out by the federal government five years ago, posted in 2012 its first annual profit since before the housing crisis and the largest in company history.
Fannie Mae on Tuesday reported net income of $17.2 billion for 2012, compared with a loss of $16.9 billion in 2011.
It was the company’s first yearly gain since 2006, before the implosion in the housing market necessitated multibillion-dollar bailouts of both Fannie Mae and fellow taxpayer-backed housing finance company Freddie Mac in 2008. Freddie Mac reported a 2012 annual profit of $11 billion in February.
“Our financial results improved significantly in 2012 and we expect our earnings to remain strong over the next few years,” Timothy J. Mayopoulos, Fannie Mae’s president and CEO, said. “We have taken a number of actions since 2009 to manage our legacy book of business, build a healthy new book of business with responsible underwriting standards, price appropriately for risk, and reduce uncertainty.”
Fannie Mae “expects to remain profitable for the foreseeable future,” the company said.
Fannie Mae and Freddie Mac are responsible for nearly 31 million mortgages, or about half of all home loans in America.
Together, the two mortgage giants received a total of $187.5 billion in bailout funds from the Treasury Department, which has recovered more than $60 billion from dividend payments. In 2012, Fannie Mae paid the government $11.6 billion in dividends.
But the two mortgage giants appear to be on the rebound. For the fourth quarter, Fannie Mae reported another record high profit of $7.6 billion from October through December.
Fannie Mae benefited from an improved housing market last year. It saw home prices go up, while mortgage delinquencies declined.
“Housing prices fell dramatically and stayed low for a number of years,” said Ric Edelman, chairman and CEO of Edelman Financial Services in Fairfax, “but we are now seeing a swift recovery in home sales and home prices. The worst of the storm is behind us.”
Fewer bad loans have also set the mortgage giant on solid ground.
“Easy lending, the days of anything goes, were what undermined Fannie Mae,” said Greg McBride, senior financial analyst and vice president at Bankrate.com, “but having tightened lending standards since, you’re now seeing improvement on that front.”
The 2012 profit stands in sharp contrast to the company’s previous six years. Fannie Mae posted cumulative losses of $146 billion between 2007 and 2010, capped by a nearly $72 billion loss in 2009, when the housing bubble burst.
That’s a total of nearly $150 billion lost to bad loans over the last half decade.
But the government came to the rescue, dishing out billions to save these two mortgage giants.
Fannie Mae received $116 billion from the Treasury Department, but has repaid just $35.6 billion. While Freddie Mac, which received $72 billion in bailout funds, has repaid nearly $20 billion.
But taxpayers could recoup more money following Fannie Mae’s record year. In addition to its regular dividends payment, Fannie Mae could make another payment because of how the company filed its taxes. Fannie Mae elected to hold on to its deferred tax assets of $58.9 billion, but it may decide to release those funds, in which case they would be considered income and go back to the taxpayers. “We expect to remain profitable for the foreseeable future and return significant value to taxpayers,” said Susan R. McFarland, executive vice president and chief financial officer at Fannie Mae.
During much of the 1980s and 1990s, Fannie’s stock was a darling of Wall Street, thanks in part to home-price increases and the government’s implicit backing.
In 1988, it was added to the Standard & Poor’s 500 stock index. In 1996, Fannie reported its 10th straight year of record profits.
⦁ This article was based in part on wire service reports.