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Fannie posts $3 billion profit despite hurricanes


Fannie Mae reported on Thursday $3 billion in net and comprehensive income in the third quarter, despite accounting for anticipated losses from a string of recent hurricanes.

Fannie’s profit was down from $3.1 billion in the second quarter. The company said the decline was primarily due to accounting for an estimated $1 billion in anticipated pre-tax credit losses as a result of the hurricanes Harvey, Irma and Maria, of which 80 percent relates to single-family loans in Puerto Rico.

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During a conference call on Thursday, Fannie's Chief Executive Officer Timothy Mayopoulos said its loss estimates in Maria-affected areas will likely be revised, as the information coming out of Puerto Rico remains sketchy. In terms of the damage and potential loss severity, Maria seems to most resemble hurricane Katrina, which destroyed great parts of New Orleans and the Gulf region in 2005. 

"With respect to Maria, we would say it had more qualities of the Katrina storm, but probably worse in many respects," Mayopoulos said. 

GSE dividend payments 

Fannie is expected to pay a $3 billion dividend to the U.S. Treasury in December. Earlier this week, Freddie Mac reported $4.7 billion in comprehensive and net income, much of which was associated with the mortgage-related securities litigation settlement. Excluding that settlement, Freddie’s comprehensive income would have been $1.8 billion. Freddie accounted for $900 million pre-tax loss ($600 million after tax) as a result of the hurricanes.  

Freddie is scheduled to pay out a $4.7 billion dividend to Treasury.

After paying out the dividends, the government-sponsored enterprises (GSEs) will each be left with a $600 million capital buffer through this year. That buffer is scheduled to be wound down to zero in 2018. The GSEs, however, can draw on a combined $258.1 billion credit line extended by the Treasury, of which $117.6 billion remains available to Fannie and $140.5 billion to Freddie. If the enterprises take a draw, however, the available amount diminishes. Their lines cannot be replenished by future profits.  

Federal Housing Finance Agency (FHFA) Director Mel Watt, who is the GSEs' conservator, and Treasury officials have reportedly held discussions about allowing the GSEs to withhold a portion of the dividends, or making other adjustments to lessen the likelihood that the enterprises will have to take a draw.

Some mortgage banking trade groups renewed calls this week for the FHFA to withhold the dividend payments.

"This week's strong Fannie and Freddie profit reports should not obscure the fact that an accounting blip or tiny quarterly loss next year could force taxpayers to advance funds because the sweep agreement arbitrarily strips these two entities of their remaining capital," said Scott Olson, executive director of the nonbank trade group the Community Home Lenders Association.  

Other banking trade groups, most prominently the Mortgage Bankers Association, have cautioned against the FHFA acting unilaterally to withhold dividends, warning that such a move could provoke an interagency legal battle and also complicate efforts now underway in Congress to pass comprehensive housing-finance reform. 


 

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