Fannie Mae earned a record net income of $17.2 billion in 2012, as the recipient of the biggest bailout in US history returned to substantial profit thanks to a resurgent housing market.
The housing finance agency, taken into government conservatorship during the crisis, paid out dividends of $11.6 billion to the US treasury during the year. In 2011, it made a loss of $16.9 billion and drew money from the treasury.
Fannie’s return to profit draws a line under a rescue that drained the treasury’s coffers for four years and is a milestone in the recovery of the US housing market.
"We had a terrific 2012," said chief executive Tim Mayopoulos. "2012 really marked a turning point for us at Fannie Mae."
Fewer households fell behind on their mortgage payments during 2012, reducing Fannie’s credit losses, with the delinquency rate down to 3.3 per cent by year end compared with 5.5 per cent in March 2010. A pick-up in house prices meant that Fannie recovered more money when selling foreclosed properties.
It also reached a settlement with Bank of America over disputed mortgages from the crisis which led to an extra $1.3 billion in pretax income for 2012.
Fannie Mae buys mortgages, provides a credit guarantee and then securitises them in the capital markets. It suffered large losses in the crisis as the mortgages it backed turned sour.
But its role, and that of its counterpart Freddie Mac, has become even more important as private mortgage security issuance has dried up. Fannie took a 48 per cent market share of new mortgage-backed securities issuance in 2012.
The return to profit at Fannie poses a dilemma for Congress because politicians on both sides are keen to scale down government involvement in housing finance. They will now face a budgetary cost from lost dividends if they do so.
Fannie has drawn down $116.1 billion in bailout funding from the treasury in the form of senior preferred stock. That, in effect, gives the government 100 per cent ownership.
Fannie has paid $31.4 billion in dividends on those preferred shares, so the government is still out of pocket by $84.7 billion. But that could change soon because Fannie has not yet restored any of the $58.9 billion in allowances against future taxes that it had previously written off. Once it is confident of future profits to use those tax allowances, it will have to put them back on its balance sheet.
The terms of Fannie’s rescue deal with the treasury mean that it is not allowed to build up net assets. As a result, if it writes back any of the deferred tax assets it will immediately have to make a full matching payment to the treasury.
Mr Mayopoulos indicated that Fannie had enough liquidity to do so. That would rapidly reduce the deficit on one of the most heavily loss-making bailouts of the financial crisis but also means Fannie would pay minimal taxes for years to come.
– (Copyright 2013 The Financial Times Limited)
