Fannie Mae Profit Falls From Record Inflated by Tax Credits

Clea Benson

February 20, 2015

(Bloomberg) — Fannie Mae reported net income of $14.2 billion last year, a sharp decline from the record $84 billion in 2013 that was inflated by accounting for tax credits.

The U.S.-owned mortgage finance company will pay the Treasury Department $1.9 billion next month after posting a profit of $1.3 billion for the period ended Dec. 31, a 12th straight positive quarter, according to a regulatory filing Friday. The fourth-quarter gain compared with $6.5 billion in the same period a year earlier.

The profit decline was due largely to accounting treatment for billions of dollars in tax credits that were counted as assets in 2013 after having been written off following the credit crisis that led to the government takeover in 2008. The company also posted about $4.8 billion in losses on derivatives it owns to hedge interest rates.

Last year “was a very good year,” Fannie Mae Chief Executive Officer Timothy J. Mayopoulos said on a call with reporters. “We continued to make progress against our goals.”

Mayopoulos said that while he expects the company to remain profitable for “the foreseeable future,” there’s an increasing risk it will eventually need another cash infusion from the U.S. Treasury.

Under terms of the bailout that provided $116.1 billion to keep Fannie Mae afloat after the credit crisis, the amount of capital the company is allowed to hold decreases every year and will reach zero in 2018. That means events such as swings in interest rates could leave the company with negative net worth, Mayopoulos said.

‘Economic Value’

“We’re trying to manage the company on a basis that produces the best economic value for the taxpayer,” he said. “The fact that we do not have a significant amount of capital does make it over time somewhat more likely that we would need to take a draw in any particular quarter.”

Fannie Mae, which provides liquidity to the mortgage market by buying loans and packaging them into guaranteed securities, has returned to profitability as the housing market recovered and it raised fees.

After its latest dividend payment, Fannie Mae will have sent the Treasury a total of $136.4 billion, about $20.3 billion more than the aid it received. The company also counts an additional $1 billion in senior preferred stock the Treasury obtained in 2008 as part of its aid package.

The payments to Treasury, which include all of the company’s quarterly profits, count as a return on the U.S. investment and not as a repayment of the taxpayer aid. Currently, there is no mechanism for Fannie Mae to exit government control.

To contact the reporter on this story: Clea Benson in Washington at cbenson20@bloomberg.net

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net Gregory Mott

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