Housing heroin

7 November 2013 By Daniel Indiviglio

Bailed-out mortgage backers Fannie and Freddie had an astounding $39 bln quarter. That sort of performance won’t last forever, and it doesn’t erase the companies’ past misdeeds. But as Congress mulls fixing the housing system, it might have trouble slaughtering two cash cows.

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U.S. housing finance company Freddie Mac announced on Nov. 7 a record $30.5 billion in earnings for the third quarter. It will pay roughly that amount to the Treasury as a dividend. Much of the windfall stems from a $23.9 billion release of its allowance against net deferred tax assets. The company also saw gains on mortgage-related securities, multifamily mortgages and proceeds related to mortgage litigation.
Fannie Mae, the other large mortgage company bailed out by the U.S. government in 2008, announced a profit of $8.7 billion on Nov. 7. Its performance was driven primarily by rising home prices reducing loss reserves, a lawsuit settlement award from Bank of America and fewer delinquent home loans.
The Senate Banking Committee also held a hearing on housing finance reform on Nov. 7. Both chambers of Congress have been considering bills that would reduce the portion of the market backed by government-sponsored entities like Fannie, Freddie, and the Federal Housing Administration. Presently, Fannie and Freddie back about two-thirds of new home loans. Along with the FHA, the government stands behind around 90 percent of all new mortgages.

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