Fannie Mae will pay $2.8B to Treasury after profit

Fannie Mae said it expects to make a $2.8 billion dividend payment to the U.S. Treasury in June after reporting a first-quarter profit driven by a relatively stable mortgage market and a continued decline in delinquencies.

The payment will come after the mortgage-finance giant reported net income of $2.8 billion for the first quarter, according to its earnings release on Friday. The profit was an increase from the $1.1 billion the Washington-based company posted a year ago, but a significant decline from the $5 billion it reported for the fourth quarter of 2016.

Fannie Mae said its income declined from the fourth quarter mainly because interest rates were relatively flat between January and March, while they increased significantly in the fourth quarter of last year. To protect against interest-rate risk, Fannie Mae uses derivatives that rise and fall in value with rate changes, though the long-term economic impact of the hedging is negligible.

The company and McLean, Va.-based Freddie Mac have been under U.S. control since the 2008 financial crisis. They received $187.5 billion in taxpayer aid to sustain them before they returned to profitability. The current terms of their bailouts require them to turn over virtually all profits to the Treasury, and the money doesn’t count as repayment for the government’s aid.

Freddie Mac said on Tuesday that it will pay $2.2 billion in June after reporting a first-quarter profit. With next month's payments, the two companies will have returned about $271 billion to taxpayers.

Fannie's net interest income, which includes income from guaranteeing mortgages, was $5.3 billion, compared to $5.8 billion in the fourth quarter. The companies used to make a significant amount of money by investing in private mortgage bonds, but they have been winding down those portfolios. Fannie said that in the first quarter about 75% of its income came from its guarantee business rather than from its mortgage portfolio.

Fannie said its serious delinquency rate on single-family mortgages fell to 1.12% from 1.44% in the fourth quarter, marking a 28th consecutive quarter of declines.

The companies' profits come as policy makers once again begin to develop plans on what to do with the companies. The Senate Banking Committee next Thursday will hear testimony from Mel Watt, who heads Fannie's and Freddie's regulator. Treasury Secretary Steven Mnuchin has said it would be irresponsible to leave the companies in their current state for another four years. Some investment firms and advocacy groups have pushed for the Trump administration to let the companies stop paying dividends and build their capital buffers.