Fannie Mae has said it would not need funds from the US Treasury for the second quarter in a row, raising hopes of an end to the housing market downturn.
The agency, the biggest provider of mortgage credit in the US, reported net profit of $5.1bn in the three months to June, surpassing the $2.9bn dividend it is required to pay to the US Treasury as a result of its 2008 bailout.
Fannie Mae had reported a loss of $2.9bn in the same period last year following derivatives losses.
The Fannie Mae announcement comes a day after Freddie Mac, the other government sponsored mortgage agency, said rising property market prices meant that it would not have to borrow from the US Treasury for the first time in more than a year. Freddie posted net income of $3bn, up from a loss of $2.1bn the year before.
“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 Timothy Mayopoulos, Fannie Mae’s chief executive.
Stronger house prices and lower provisions for future credit losses helped raise Fannie Mae profits by about 3 per cent in the period, said Susan McFarland, chief financial officer. The agency sold some of its foreclosed property – known as “real estate-owned” – for higher prices.
“We had that combination of factors all going in a good direction,” she said.
Low interest rates have been a problem. Fannie recorded market value losses in the second quarter of $2.4bn on the vast derivatives portfolio it uses to hedge its mortgage and interest rates exposures, compared with a gain of $283m in the first quarter.
Fannie Mae and Freddie Mac have been embroiled in regulatory discussions about a debt forgiveness plan. The Federal Housing Finance Agency last week blocked the so-called Home Affordable Mortgage Programme Principal Reduction Alternative, which would have allowed the agencies to write down principal owed by borrowers on home loans.
A slowdown in home prices could impact the agency’s ability to cover fully the dividend it owes to the US Treasury later this year. Fannie can keep the extra profits it generates in reserve for future payments, but before entering conservatorship the agency rarely made quarterly profit above $2.9bn.
“It’s going to be close,” said Ms McFarland.