Freddie Mac, the U.S.-owned mortgage financier, will pay $4.4 billion to the Treasury Department after continued housing-market improvements allowed the company to post a seventh consecutive profitable quarter.
The McLean, Virginia-based company, which has operated under federal conservatorship since it was seized in 2008, had net income of $5 billion for the three-month period that ended June 30, according to a statement released today.
“Clearly our outstanding financial results continue to benefit from the turnaround in the housing market as well as our work to minimize losses and build a strong new book of business,” Freddie Mac Chief Executive Officer Donald Layton said on a conference call with reporters.
Freddie Mac finished the second quarter with net worth of $7.4 billion and is required to pay everything above $3 billion to Treasury in return for the taxpayer aid it has received under conservatorship. The company and Washington-based Fannie Mae were sustained by drawing almost $190 billion in assistance after they were seized amid soaring losses during the subprime mortgage crisis.
The two government-sponsored enterprises returned to profitability as the housing market rebounded. They’ve paid the Treasury a total of $131.6 billion in dividends, which count as a return on the U.S. investment in the firms and not repayment of their debt to taxpayers.
Freddie Mac could send as much as $28.6 billion back to the federal government in the next two quarters if the company determines that tax credits it holds have value because it will remain profitable, Layton said.
Guarantee Payments
Fannie Mae and Freddie Mac, which were created by the federal government before becoming publicly traded companies, buy mortgages from lenders and package them into securities on which they guarantee payments of principal and interest.
President Barack Obama yesterday called for the two companies to be replaced with a government mortgage reinsurer that would sustain losses only in catastrophic circumstances.
Hedge funds including Paulson & Co. Inc. have been pushing Congress to abandon plans to liquidate the companies as they buy up preferred stock that has been soaring after being considered worthless, according to people with knowledge of the discussions. Some owners of preferred shares have sued the U.S. government, charging that some of the companies’ profits should eventually go to stockholders.
Freddie Mac is not involved in the suits, Layton said. “In conservatorship, we are a watcher, not a player in this activity,” he said.
Eminent Domain
The company is also monitoring plans by local governments to seize mortgages from investors using their power of eminent domain so that they can reduce balances for borrowers in danger of default. Freddie Mac would consider taking legal action to block the eminent domain seizures if its regulator, the Federal Housing Finance Agency, wanted to do so, the company’s general counsel, William McDavid, said on the call with reporters.
Freddie Mac said in a statement yesterday that Saiyid T. Naqvi, former head of PNC Financial Services Group Inc.’s mortgage unit, has joined its board of directors.