* Fannie Mae, Freddie Mac to give U.S. Treasury $5.6 billion
* Firms' profits less dependent on one-off factors
(Adds CEOs' comments, background)
By Jason Lange
WASHINGTON, Aug 7 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
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
"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
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
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.
(Reporting by Jason Lange; Editing by Andrea Ricci)