For the first time since the disastrous financial crisis struck in 2007, Freddie Mac just reported an $11 billion annual profit for 2012 — its largest ever annual gain and first profitable year since 2006.
Fannie Mae, which has not yet posted its annual results, reported $9.6 billion in profit during the first three quarters of 2012.
According to the company’s earnings release, the increase reflects a decrease in delinquent single-family loans, improved national home prices, and a higher income tax benefit. Under an agreement with the Treasury Department, the companies had been required to pay a 10 percent dividend to the government which required them to sometimes draw aid just to make the payments. According to new terms implemented this year payments are only mandated when the companies turn a profit. But they are now required to turn over most of their earnings. This new arrangement could lead them to pay back taxpayers faster and will prevent them from building equity. The Congressional Budget Office estimated in February that the companies would return $17 billion to the Treasury this year, instead of borrowing another $13 billion in 2013 as previously estimated.
“It’s clear from our earnings that the housing market has turned a corner and that our work to minimize legacy losses and build a strong new book of business is paying off,” Donald Layton, Freddie’s chief executive officer, said in a statement.
As for contributions to the housing market, Layton said, “In 2012, we helped 2.5 million families to buy, refinance or rent a home and another 170,000 to avoid foreclosure – bringing the total to nearly 10 million since the start of the housing crisis. We continue to work with our regulator, our customers and the industry to support the housing market and build a stronger mortgage finance system for the nation.”
Rising home prices are boosting Freddie’s profit because the company is losing less on homes that go through foreclosure. Freddie lost around 35 cents for every $1 of debt that went through foreclosure during the fourth quarter, compared with nearly 41 cents one year ago. And home prices last year rose by 7.3%, according to the S&P/Case-Shiller national home-price index, resulting in the largest gain since 2005.
For the last five consecutive quarters, Freddie has now reported profits, with a fourth-quarter gain of $4.5 billion, compared with a third-quarter profit of $2.9 billion and a year-earlier gain of $619 million.
Freddie Mac and Fannie Mae have received almost $190 billion in U.S. assistance since the government rescue mission in September 2008 after the burst of the housing bubble that brought the two companies to the brink of bankruptcy.
Freddie will make a $5.8 billion dividend payment to the U.S. Treasury in March. The company has in all received $71.3 billion from the Treasury, and will have paid $29.6 billion in dividends, for a total cost to taxpayers of about $41.8 billion. Fannie’s rescue has cost taxpayers $87.8 billion.
Author: Heidi Lind, International Group Coordinator, Charlotte
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