Concerns grow over Fannie, Freddie shrinking profits

Shrinking profits at Fannie Mae and Freddie Mac are reviving calls by housing groups for Congress to act quickly on long-delayed housing finance reform legislation.

The National Association of Home Builders (NAHB) said the sharp drop in income at both mortgage giants over the past year is cause for concern and should prod lawmakers into ramping up their legislative efforts. 

NAHB Chairman Tom Woods said Friday’s announcement that Fannie’s fourth-quarter earnings fell by 66 percent and that it may soon need a cash injection from the Treasury Department “should serve as a wake-up call to Congress to move quickly to advance housing finance reform.”

“The time to act is now while Fannie Mae and Freddie Mac remain in relatively good financial health and not to kick the can down the road and wait until a possible crisis develops,” he said. 

The Senate Banking Committee approved a bill — led by former Chairman Tim Johnson (D-S.D.) and then-ranking member Mike Crapo (R-Idaho) — in May. 

Johnson and Crapo used a measure crafted by Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.) as a foundation and then fine-tuned their legislation with input from housing and mortgage groups.

But neither the Senate measure nor one approved by the House Financial Services Committee with only Republican support ever received floor consideration.

But Woods said that “lawmakers need to build on those efforts.”

On Friday, government-controlled Fannie reported fourth-quarter net income of $1.3 billion, a steep drop from $3.9 billion in the third quarter and $6.5 billion a year ago.

Fannie will pay a dividend of $1.9 billion in March and it was the its 12th straight profitable quarter.

“We continued to manage our business effectively, put the legacy issues from the financial crisis behind us, and implement innovations to lead the industry toward a sustainable housing finance system for today and the future,” said Tim Mayopoulos, president and chief executive officer.

“We are committed to serving our partners and focused on reducing barriers to lending to qualified borrowers.”

Overall last year, Fannie reported net income of $14.2 billion, a sharp drop from $84 billion in 2013.

On Thursday, Freddie reported net income of $227 million for the fourth quarter and will pay a dividend of $900 million to the Treasury next month.

It was the 13th consecutive quarter that Freddie posted a profit.

All told, Fannie will have paid $136.4 billion in dividends, well above the $116.1 billion it received from taxpayers during the financial crisis.

Freddie received about $71.3 billion in support from the Treasury. After the expected March payment, Freddie will have paid back $91.8 billion.

But those payments don’t count as a repayment of the funds it needed to stay afloat after the government took over Fannie and Freddie during the 2008 financial crisis.

Fannie and Freddie don’t make loans but, instead, buy loans from lenders and guarantee them against failure. They back about half of the nation’s mortgages, amounting to about $5 trillion.