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Freddie Mac/Fannie Mae Post HUGE Q2 Incomes – Casts Doubts on Reform?

by Peter Thomas Ricci

The second quarter was a spectacular one for Freddie and Freddie, but are such successes problematic for the government’s reform efforts?

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Fannie Mae and Freddie Mac had mighty good second quarters – not only did the GSEs post respective incomes of $10.1 and $5.0 billion (Fannie’s sixth consecutive quarterly profit and Freddie’s second highest ever), but both made substantial payments to the Treasury Department, with Fannie paying back $10.2 billion and Freddie $4.4 billion.

In the wake of reform efforts, though, for Freddie and its sister organization, Fannie Mae, do such successes stand in the way of such efforts?

A Roaring Second Quarter for Fannie/Freddie

Other notable information from Freddie’s second quarter report included:

  • Since the start of 2009, Freddie has provided roughly $2.0 trillion of liquidity to the mortgage markets, while Fannie has provided $3.7 trillion.
  • No doubt, the main reason for the GSEs’ recent profitability has been the strength of their portfolios; 70 percent of the Freddie’s single-family portfolio is now comprised of loans made after 2008, as are 72 percent of Fannie’s.
  • Freddie’s portfolio for those recent loans has an average credit rating of 751 and a minuscule serious delinquency rate of just 0.37 percent; for comparison’s sake, the serious delinquency rate for loans made between 2005 and 2008 is 9.39 percent.

The Price of Success?

The Treasury Department still has considerable stakes in the GSEs, and the taxpayer bailouts that followed the 2008 mortgage meltdown have been compelling reasons for reform efforts on Capital Hill, the most recent of which was endorsed by President Obama in a housing-related address in Phoenix.

“For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag,” Obama said, adding that he supports a proposal in the Senate to wind down Freddie and Fannie within five years and replace them with a system of private exchanges.

However, will the GSEs’ recent successes make those reform efforts more difficult to pull off? After all, it was no doubt easier drumming up support for reform efforts when the GSEs were losing tens of billions of dollars a year, but now, with superbly healthy portfolios and record-breaking profits, will that urgency still be there? For instance, according to The Wall Street Journal, Fannie is now so profitable that by early next year, it will likely pay off all the money it owes taxpayers.

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