Freddie Mac posts $993M profit in 2Q; paying $933M dividend

WASHINGTON – Mortgage giant Freddie Mac reported net income of $993 million for the second quarter, down sharply from the same period of 2015.

The company said Tuesday its income from fees received from lenders for guaranteeing mortgages increased in the April-through-June period, but it sustained losses on investments because of the decline in interest rates.

McLean, Virginia-based Freddie will pay a dividend of $933 million to the U.S. Treasury next month. Freddie will have paid $99.1 billion in dividends, exceeding its government bailout of $71 billion.

The government rescued Freddie and larger sibling Fannie Mae at the height of the financial crisis in September 2008, after they suffered huge losses from risky mortgages in the housing market bust.

Together the companies received taxpayer aid totalling about $187 billion. The housing market’s gradual recovery has made Freddie and Fannie profitable again.

Freddie’s second-quarter profit marked a substantial decline from the $4.2 billion it earned in the same period of 2015. Falling interest rates during the period caused the company to post an estimated $400 million loss on the investments it uses to hedge against swings in rates.

Record-low interest rates this year have helped spur home purchases and boost the housing market.

The Federal Reserve has been holding its key short-term rate near zero since 2008, and a statement from the Fed last Wednesday after its latest policy meeting had led many economists to conclude that a strengthening economy would lead the central bank to resume raising rates as soon as September. But after a government report Friday showed a surprisingly lacklustre economy last quarter, many economists said a September rate hike was now probably off the table. The Commerce Department data showed that gross domestic product — the broadest gauge of the economy — grew just 1.2 per cent in the April-June period.

Freddie and Fannie own or guarantee about half of all U.S. mortgages, worth about $5 trillion. Along with other federal agencies, they back roughly 90 per cent of new home loans.

The two companies don’t directly make loans to borrowers. They buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. That helps make loans available.

Freddie said its income from guaranteeing mortgages increased to $124 million in the April-June quarter from $92 million a year earlier.

The housing market’s revival over the last four years has been choppy, and it has lagged behind the rest of the economy. Despite the low borrowing rates that could lure prospective homebuyers, the market has remained hampered by tight mortgage credit, rising home prices and stagnating incomes.

The U.S. homeownership rate fell in the second quarter to match the lowest level on record in 1965, the year the U.S. Census Bureau started publishing the figures, according to Census data issued last week. The homeownership rate in the April-June period was 62.9 per cent, down 0.5 percentage point from 63.4 per cent in the second quarter of 2015.

Affordability remains a problem and the potential for new-home sales to regain their historic average sales rate of 650,000 could be limited.


This story has been corrected to show that Freddie Mac’s net income for the second quarter is $993 million.