U.S. mortgage giant Freddie Mac posted net income of $8.6 billion US for the October through December period, its ninth straight profitable quarter. Earnings were boosted by the continued rise in home prices, which reduced the amounts the company had to set aside to cover losses on mortgages.
Freddie's fourth-quarter profit reported Thursday nearly doubled from earnings of $4.5 billion in the last three months of 2012.
McLean, Virginia-based Freddie said it will pay a dividend of $10.4 billion to the U.S. Treasury next month. Freddie already had repaid its full government bailout of $71.3 billion after paying its third-quarter dividend.
Government bailout in 2008
The government rescued Freddie and larger sibling Fannie Mae at the height of the financial crisis in September 2008. Together the companies received taxpayer aid totaling $187 billion.
Freddie said its full-year profit of $48.7 billion for 2013 benefited from the increase in home prices as well as the company having capitalized on the tax benefits of the sour loans it absorbed during the crisis. By applying the tax credits it had saved from its losses on delinquent loans in the third quarter, Freddie reduced what it owed the government and boosted its bottom line by $23.3 billion for 2013.
The 2013 earnings rose sharply from $11 billion in 2012.
However, Freddie said Thursday that its recent strong level of earnings "is not sustainable over the long term" because the rise in home prices has begun to slow and the use of its tax benefits was an unusual event.
Settlements in subprime debacle
Freddie also gained billions of dollars last year from a number of settlements with major banks over soured mortgage securities it bought from them before the crisis.
As the housing market has gradually recovered and made Fannie and Freddie profitable again, they have repaid their government loans as dividends each quarter. Those repayments have helped make last year's federal budget deficit the smallest in five years.
Under a federal policy, Fannie and Freddie must turn over their entire net worth above $2.4 billion in each quarter to the Treasury. Freddie said its net worth in the fourth quarter was $12.8 billion.
Washington-based Fannie reported last week that it earned $6.5 billion in the fourth quarter, its eighth straight profitable quarter. Fannie will have repaid its full government bailout of $116 billion after paying its fourth-quarter dividend.
Fannie and Freddie own or guarantee about half of all U.S. mortgages, worth about $5 trillion. Along with other federal agencies, they back roughly 90 percent of new mortgages.
Role to guarantee mortgage financing
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.
President Barack Obama has proposed a broad overhaul of the U.S. mortgage finance system — including winding down Fannie and Freddie.
The goal is to replace them with a system that would put the private sector, not the government, primarily at risk for the loans. The government would still be involved, both in oversight and as a last-resort loan guarantor. Obama also wants a guarantee that private lenders will make sure homeowners have access to 30-year fixed mortgages.
A fix to the housing finance system is unlikely to be easy, however. The Obama plan is in line with bipartisan Senate legislation. But most Republicans in the House of Representatives want the market almost completely privatized, while many Democrats insist on government having a larger role.