Fred­die Mac posts $1.7bn net in­come in sec­ond quar­ter

Kuwait Times - - BUSINESS -

Mort­gage gi­ant Fred­die Mac re­ported net in­come of $1.7 bil­lion for the sec­ond quar­ter, up from the same pe­riod of 2016. The gov­ern­ment­con­trolled com­pany said yes­ter­day its earn­ings were boosted by in­creased in­come from fees paid by lenders for guar­an­tee­ing mort­gages in the Aprilthrough-June pe­riod.

Fred­die, based in McLean, Vir­ginia, will pay a div­i­dend of $2 bil­lion to the US Trea­sury next month. Fred­die will have paid a to­tal $110.2 bil­lion in div­i­dends, ex­ceed­ing its gov­ern­ment bailout of $71 bil­lion. The gov­ern­ment res­cued Fred­die and larger sib­ling Fan­nie Mae at the height of the fi­nan­cial cri­sis in Sep­tem­ber 2008, after they suf­fered huge losses from risky mort­gages in the hous­ing mar­ket bust.

To­gether the com­pa­nies re­ceived tax­payer aid to­tal­ing about $187 bil­lion. The hous­ing mar­ket’s grad­ual re­cov­ery, helped by record-low in­ter­est rates spurring home pur­chases, has made Fred­die and Fan­nie prof­itable again. Still, the hous­ing mar­ket’s re­vival has been choppy, and it has lagged be­hind the rest of the econ­omy. De­spite the low bor­row­ing rates that could lure prospec­tive home­buy­ers, the mar­ket has re­mained ham­pered by tight mort­gage credit, ris­ing home prices and stag­nat­ing in­comes.

With the econ­omy on solid foot­ing and un­em­ploy­ment at healthy lev­els, the Fed­eral Re­serve had been in a cam­paign ear­lier this year to grad­u­ally raise in­ter­est rates from ul­tra-lows. But the Fed took a pause start­ing in May, keep­ing its key short-term rate un­changed - after hav­ing raised it in March for the sec­ond time in three months. Last week the Fed said that it’s keep­ing its the rate steady at a time when in­fla­tion re­mains un­de­sir­ably low de­spite the job mar­ket con­tin­u­ing to strengthen.

Fred­die’s sec­ond-quar­ter profit marked an in­crease from the $993 mil­lion it earned in the same pe­riod of 2016. The com­pany said its in­come from lenders for guar­an­tee­ing mort­gages in­creased to $158 mil­lion in the sec­ond quar­ter from $124 mil­lion a year ear­lier.

Fred­die and Fan­nie own or guar­an­tee about half of all US mort­gages, worth about $5 tril­lion. Along with other fed­eral agen­cies, they back roughly 90 per­cent of new home loans. The two com­pa­nies don’t di­rectly make loans to bor­row­ers. They buy mort­gages from lenders, pack­age them as bonds, guar­an­tee them against de­fault and sell them to in­vestors. That helps make loans avail­able.

Trea­sury Sec­re­tary Steven Mnuchin has said that pri­va­tiz­ing Fan­nie and Fred­die, cut­ting them loose from gov­ern­ment con­trol, is a pri­or­ity of the Trump ad­min­is­tra­tion. But Con­gress hasn’t yet moved on leg­is­la­tion to over­haul the mort­gage gi­ants. —AP

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