Freddie Mac reports $5 billion profit, will repay Treasury $4.4 billion
Freddie Mac reported it earned its second-largest profit ever during the second quarter, $5 billion, and said Wednesday it will make another $4.4 billion dividend payment to the U.S. Treasury.
The latest payment will bring to $41 billion the amount that the mortgage finance company has returned to taxpayers so far. It still owes about $30 billion.
Freddie Mac has been riding a housing-market rebound to profitability for the past seven quarters. The market has been boosted by low mortgage rates and rising home prices that have created a frenzy of demand among some buyers.
A stronger economy is also keeping more borrowers out of trouble: Only 2.79 percent of borrowers with loans backed by Freddie Mac were seriously delinquent during the second quarter, compared with 3.03 percent during the same period last year.
“Clearly our outstanding financial results continue to benefit from the turnaround in the housing markets as well as from our work to minimize losses and build a strong new book of business,” said Donald H. Layton, Freddie’s chief executive.
Freddie Mac, which was seized by the government during the 2008 financial crisis, reported that if current positive housing trends continue, it could make an additional payment to the Treasury this year.
Its sister company, Fannie Mae, which has not yet reported second-quarter results, has also returned to profitability and said in May it would make a $59.4 billion payment to taxpayers.
This comes as lawmakers and the Obama administration begin to debate the future of the country’s mortgage financing system.
“The problem has been that Fannie and Freddie were a hybrid of a public and private institutions that worked quite well in good times, but not in bad,” said Robert Shapiro, a former undersecretary of commerce and current chairman of the Sonecon economic advisory firm.
On Tuesday, President Obama said that it’s time to replace mortgage giants Fannie Mae and Freddie Mac and said that any future system must place the vast majority of financial risk on private-sector lenders. Obama also has expressed support for legislation introduced by Sens. Tim Johnson (D-S.D.) and Bob Corker (R-Tenn.) that would replace Fannie and Freddie with a new federal agency.
Having private enterprises take more risk is a reasonable thing to do, but the debate is complicated by the profits currently being generated by both companies, analysts say.
“Earnings like Freddie Mac posted on the second quarter are going to continue to challenge the conviction of lawmakers that are inclined to wind them down,” said Tim Rood, former director of Fannie Mae’s eBusiness division and currently the managing director at Collingwood Group, a financial and housing advisory firm.