Fannie Mae posts $5.1-billion 2nd-quarter profit, easing bailout

WASHINGTON — Buoyed by rising home prices, Fannie Mae on Wednesday posted a $5.1-billion profit from April through June and said that for the second straight quarter it would not need any more bailout money.

The improving real estate market was the main driver of one of the most profitable quarters ever by Fannie, the huge housing finance company that was seized by the government in 2008 along with sister firm Freddie Mac as they neared bankruptcy because of the collapse of the housing bubble.

“While it is too early to declare a national housing recovery, and our results for the second half of 2012 may not be as strong as the first half, we expect our financial results in 2012 to be substantially better than the past few years,” said Fannie Mae Chief Executive Timothy J. Mayopoulos.

Fannie reported a major drop in anticipated losses from bad loans it bought or guaranteed during the subprime mortgage boom. Because of that, Fannie did not have to set aside any additional money for future loan losses.

The company actually reported a $3-billion benefit from its $68-billion fund to cover future losses because losses in the second quarter and anticipated future write-offs were both down sharply.

Fannie Mae’s upbeat earnings followed a similar report Tuesday by Freddie Mac, which posted a $3-billion second quarter profit and also said it would not need more bailout money for that period.

The two companies, which are in government conservatorship and owned by the taxpayers, have received a combined $188 billion in federal money since 2008. Fannie and Freddie have repaid about $46 billion to the Treasury in dividends, leaving taxpayers on the hook for about $142 billion.

For every quarter that neither company needs additional bailout funds the dividend payments further reduce the amount owed to taxpayers. Combined, Fannie and Freddie own or back about 60% of all U.S. mortgages.

Fannie’s $5.1-billion second-quarter profit was the most the company has reported since 2004, when it restated its past earnings.

“It’s probably one of the most profitable quarters the company has ever had, pre- or post-conservatorship,” said Susan McFarland, Fannie’s chief financial officer. “Most of the things that affect our bottom line, with one exception, moved in a positive direction.”

The exception was interest rates, which dropped, leading to losses on derivatives owned by the company.

But McFarland cautioned that the second-quarter earnings might not continue for the rest of the year.

“We know in the second quarter of most years we see a better home price situation because it’s the spring selling season,” she said. “So we know that part of the improvement, not all of it, was the spring selling season.”

And although Fannie has now gone two straight quarters without needing more bailout money, McFarland would not guarantee the company would not have to ask for help again because of the dividend payments owed to the Treasury.

The second-quarter dividend payment was $2.9 billion, and the company might not make enough money in future quarters to cover it.

“I think there’s a decent likelihood that every once in a while we won’t earn enough to cover the full amount of the dividend payment,” she said.

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