Government-controlled mortgage finance firms Fannie Mae and Freddie Mac made enough money in the second quarter to give taxpayers $5.6 billion in dividends, a sign they can turn substantial profits even in a lackluster housing market.
The two companies were seized by the U.S. government in 2008 to save them from bankruptcy. Under the terms of the bailout, they turn over their profits to the U.S. Treasury.
Those dividends swelled over the last year due to one-off events like legal settlements but the results posted on Thursday gave a signal they could keep turning profits for some time to come.
"This quarter gives you a good sense of a normalized environment," Fannie Mae Chief Executive Tim Mayopoulos said on a conference call with reporters. He said he expects Fannie Mae to remain profitable for the "foreseeable future."
Once Fannie Mae and Freddie Mac make their latest payments in September, they will have returned $218.7 billion to taxpayers in return for the $187.5 billion in aid they received after being placed under the government's wing at the height of the financial crisis.
The firms don't lend money directly. Rather, they make money buying mortgages from lenders and repackaging them into securities which they then sell to investors with a guarantee.
Fannie Mae, the nation's largest source of mortgage funds, earned a $3.7 billion profit between April and June and will turn it over as its dividend payment. Freddie Mac, the No. 2 mortgage provider, will pay the Treasury $1.9 billion.
Shares for the two companies edged lower.
The dividends had also swelled in prior quarters because of big profits booked on accounting gains from the recognition of deferred tax assets.
Both the settlements and the tax matters appear to be largely behind, Mayopoulos said. In a positive sign for future profits, Fannie Mae said rising home prices had helped its bottom line. Freddie Mac CEO Donald Layton said underlying earnings were relatively stable in the second quarter.
The U.S. housing market slowed sharply in late 2013 after mortgage rates rose. Home resales have partially recovered this year but are well below the peak reached in 2005.
Fannie Mae and Freddie Mac's obligation to turn over all their profits to the Treasury has helped keep them undercapitalized, analysts say, and a severe downturn in the housing market could eventually lead them to require further bailouts.
The Obama administration has argued for replacing the firms with a new entity, but lawmakers look unlikely to address housing reform until at least after congressional elections in November - and any reform effort would probably be a multi-year task.
Republicans want to see less government support of mortgages, while some Democrats argue low-income borrowers should get more support.
Private shareholders in Fannie Mae and Freddie Mac have sued the government over the dividend policy, claiming Washington is expropriating the value of their preferred shares. The litigation, currently in pre-trial phases, is expected to drag on for years.
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