Fannie Mae, the government-backed mortgage insurance company, has reached a milestone. After receiving billions in taxpayer funds to stay afloat, Fannie Mae has posted a significant profit and pledges to not take another dime in federal funds.
Poorhouse to penthouse
One of the effects of the housing crash of the past few years was that two of the central financial institutions in the American housing industry, Freddie Mac and Fannie Mae, lost hundreds of billions of dollars. Roughly half of all mortgages in the United States, according to USA Today, are owned or guaranteed by Freddie or Fannie, comprising about 31 million homes and $5 trillion worth in value.
In September 2008, the Federal Housing Finance Agency had to assume control of the two mortgage backing agencies. Fannie and Freddie received massive amounts of federal funding in order to stay afloat, and the agencies have received about $170 billion to date in loans from taxpayers.
Fannie received the most, about $117.1 billion in funding, according to Reuters. However, Fannie has also managed to turn its losses around and post its first profit in nearly four years.
Declines further funding
Fannie Mae has reported a first-quarter profit of $2.7 billion, after making a $2.8 billion repayment to the federal government. The agency has repaid $22.6 billion of its loans since the bailout of Freddie and Fannie in 2008. The return to profit is in stark contrast to the first quarter of calendar year 2011, when Fannie Mae posted a loss of $6.5 billion.
Delinquency rates for mortgages backed by Fannie Mae have also declined, falling from 5.47 percent in the first quarter of 2011 for single-family homes at least three months behind in payments to 3.67 percent in the latest quarter.
The company has also, according to the New York Times, refused any further federal funds. Freddie Mac, however, did have to take a further $19 million in taxpayer funds in order to make a $1.8 billion payment to taxpayers, though after posting a profit of $577 million, according to Reuters.
Still dominant forces
Despite government officials declaring that Freddie Mac and Fannie Mae’s roles needed to be reduced in the national housing market, the two firms are still a dominant force. After a mortgage is lent by a bank, Freddie or Fannie buys the loan and assumes ownership or sells it as a security to investors, keeping banks in fresh capital for lending. Freddie and Fannie still own roughly 60 percent of new mortgages.
Including other government-backed entities, government-backed agencies own or guarantee roughly 90 percent of all mortgages, according to USA Today.