Fannie Mae Posts Profit, Doesn't Need Taxpayer Aid For First Time Since Bailout

Fannie Mae Doesn't Need Taxpayer Aid For First Time Since Bailout

* Fannie Mae posts Q1 profit of $2.7 billion

* Profit due to fewer delinquencies

* Escapes need for taxpayer aid this quarter

By Margaret Chadbourn

WASHINGTON, May 9 (Reuters) - Fannie Mae, the largest backer of loans in the U.S. housing market, posted a profit on We dnesday and said it would not need more taxpayer aid for the first time since the height of the financial crisis in late 2008, when it was rescued by the government.

In a new sign that the U.S. housing market is on the mend, the mortgage giant posted a first-quarter profit of $2.7 billion. That was its best performance since being pushed to the verge of collapse by the U.S. housing crash and the surge in bad debts on its books.

Fannie Mae said it paid the Treasury $2.8 billion in dividends to the government, which owns nearly 80 percent of the firm.

The company has drawn a total of $117.1 billion in federal aid, fueling criticism from Republicans who want to end the taxpayer bailout and scale back the government's footprint in the mortgage market. So far, Fannie Mae has paid back $22.6 billion in the form of dividend payments to the Treasury.

Fannie Mae and Freddie Mac have extended their dominance of the housing finance system since the financial crisis hit and prompted private banks and other firms to rein in their mortgage lending.

The two government-run companies, felled by poor underwriting of sub-prime loans, now support about 60 percent of all new U.S. home loans and have been propped up by about $151 billion in taxpayer funds.

Fannie Mae's recent profit compared with a net loss of $6.5 billion in the first quarter of 2011.

The improvement was due primarily to lower credit-related expenses as home prices stabilized in some pockets of the country, and there was a decrease in losses on sales of foreclosed properties held by the firm.

Susan McFarland, executive vice president and chief financial officer, told Reuters the first-quarter results indicated the company has the ability to return some of the taxpayer dollars it received.

"It's great to have a quarter like this one that begins to show the value of our new book of business and shows the earning potential that we have to pay the taxpayer back," she said in an interview.

But McFarland cautioned that Fannie Mae might not be out of the woods yet, as the economy remains soft and Fannie Mae has to remain "very attentive to what is going on" as it will affect credit-related expenses.

Fannie Mae's serious delinquency rate -- single-family home loans at least three months past due or near foreclosure -- was 3.67 percent in the first quarter, down from 5.47 percent a year earlier, and has dropped every quarter over the last two years.

As a result, loan-loss provisions fell to $2 billion in the first quarter from $5.5 billion in the fourth quarter and $10.55 billion in the 2011 first quarter.

The White House, some Federal Reserve policymakers and many Democrats are pressing Fannie Mae and Freddie Mac to do more to prop up the still-weak housing market, including the possibility of writing down principal owed by struggling homeowners. The companies' regulator has resisted, arguing it would cost the companies, and hence U.S. taxpayers, more money.

Fannie Mae and Freddie Mac do not directly lend to consumers but buy and insure mortgages from banks to help lenders make more loans.

Last week, Freddie Mac posted a profit of $577 million for the first quarter and drew an additional $19 million in taxpayer aid. The profit failed to make up for a dividend payment to the government for its controlling stake in the company.

Fannie Mae's credit loss reserves to cover future losses fell to $74.6 billion as of March 31 from a peak of $76.9 billion at Dec. 31. A majority of the company's losses are still due to risky loans purchased during the housing boom between 2005 and 2007.

There are signs that U.S. home prices have touched bottom after losing about a third of their value from their peak in 2006.

The S&P/Case Shiller index of single-family home prices in February rose 0.2 percent on a seasonally adjusted basis compared with January, the first such increase in 10 months, and the smallest year-on-year fall since February 2011. The National Association of Realtors said on W edn esday that home prices increased in more than half of U.S. metropolitan areas during the first quarter of the year.

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