Another Sign of Recovery?

When Fannie is happy, everybody’s happy. Fannie Mae reported $5.1 billion profits for the second quarter of 2012. That’s up quite a bit from the Q1 $2.7 billion reported profit.

But let’s not be too fast to celebrate. Though the news is certainly good, it is questionable whether it really is a sign of recovery. Most of the profit can be contributed to the lower losses. Both Fannie Mae and Freddie Mac, the other government lending institution, have tightened lending standards since 2009, leading to better-quality loans. In fact, Fannie Mae moved $3 billion out of its loss-reserve account in anticipation of fewer losses going forward.

Timothy J. Mayopoulos, chief executive of Fannie Mae, said: “While it is too early to declare a national housing recovery and our results for the second half of 2012 may not be as strong as the first half, we expect our financial results in 2012 to be substantially better than the past few years.”

Though this is still rather good news for the national economy, it might have you wondering who profit’s from Fannie Mae’s success?  Remember Fannie and Freddie were both part of the nearly $142 billion taxpayer bailout in late 2008. And, that’s where the profit goes: Every quarter Fannie Mae has to pay the government a big dividend, which in the most recent period amounted to $2.9 billion.

The $5.1 billion profit, was used to make that payment. In other quarters, when profit was below the dividend obligation, Fannie had to borrow from the government to pay it, which also increases future dividend payments.

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