WASHINGTON (AP) — Mortgage giant Fannie Mae earned a record $58.7 billion from January through March, benefiting from a one-time accounting move that allowed the company to lower its tax liability.
Fannie reported Thursday that $50.6 billion of its first-quarter net income came in part from losses on delinquent mortgages incurred during the housing crisis that Fannie applied to its 2013 taxes. That helped reduce what the company owed in taxes, and boosted its profit.
The government-controlled company also reported earning $8.1 billion in the first quarter before taxes, mostly because of a better housing market.
The first-quarter gain compares with net income of $2.7 billion in the first quarter of 2012. Fannie has now had five straight profitable quarters.
Fannie will pay a dividend of $59.4 billion to the U.S. Treasury next month. It requested no additional aid from the government.
The government rescued Fannie and smaller sibling Freddie Mac during the financial crisis in 2008. Taxpayers loaned about $170 billion to rescue the companies. Of that, roughly $116 billion went to support Washington-based Fannie. With its latest dividend, Fannie will have repaid about $95 billion.
Under a federal policy adopted last summer, Fannie and Freddie must turn over their quarterly profits to the government in return for the taxpayer aid. They are required to pay everything above $3 billion of their net worth in each quarter to the Treasury. Fannie said its net worth in the first quarter was $62.4 billion
Fannie is coming off its most profitable year ever, thanks in part to a recovery in housing that began last year. Home sales are up from a year ago, helped by a limited supply and record-low mortgage rates. Builders are more confident and have started to construct more homes. And home prices are showing consistent gains.
For Fannie and Freddie, a better housing market means fewer delinquent loans on their books. The improvement also has allowed the companies to charge mortgage lenders higher fees to guarantee the loans.
Fannie earned $17.2 billion in 2012 and says it expects to stay profitable for "the foreseeable future."
Fannie said Thursday that it decided apply the losses on the delinquent mortgages to its taxes this year because it is profitable again. As a result of the accounting move, Fannie could fully repay the government sooner than had been expected. In recent months, Fannie has been working out with federal regulators and its auditors the details of the tax benefit and to which quarter it could be applied.
Companies sometimes use losses to reduce their tax burden in future years when they become profitable. Another company that received a big bailout in the crisis, major insurer American International Group Inc., for example, had a tax reduction worth $17.7 billion in late 2011. AIG repaid the $182.5 billion bailout over the years and the Treasury sold off the last its stock in AIG in December, severing its final financial link to the company.
Freddie is also profitable again. It reported Wednesday that it earned $4.6 billion in the first quarter and will pay a dividend of $7 billion to the Treasury next month. Freddie CEO Donald Layton said the company could consider making an accounting change similar to Fannie's as soon as the April-June quarter.
Fannie and Freddie don't directly make loans. Rather, they buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. In doing so, they help make loans available and exert influence over the housing market.
Together, Fannie and Freddie own or guarantee about half of U.S. mortgages — nearly 31 million home loans worth $5 trillion. And along with other federal agencies, they back about 90 percent of new mortgages.
The Obama administration proposed a plan in 2011 to slowly dissolve Fannie and Freddie, with the goal of shrinking the government's role in the mortgage finance system. But Congress hasn't yet decided how far the government's role should be reduced.