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Freddie makes good: Freddie Mac earns $5 billion in second quarter

By Catholic Online (NEWS CONSORTIUM)
August 7th, 2013
Catholic Online (www.catholic.org)

No need to worry about the economy's good friend, Freddie Mac. The mortgage giant is reporting an astonishing $5 billion profit for the second quarter, the months from April through June. The second-quarter gain reported this week compares with net income of $3 billion in the same period of 2012. According to Freddie, the windfall is due largely to increased profits from investments made to hedge against rising interest rates, helping offset losses on mortgages during the quarter.

LOS ANGELES, CA (Catholic Online) - Based in McLean, Virginia, Freddie Mac will pay a dividend of $4.4 billion to the U.S. Treasury in September and is requesting no additional aid. It's welcome turnaround, as the government rescued Freddie and with larger "sibling" Fannie Mae during the financial crisis in 2008, receiving loans of about $187 billion.

Last year's housing recovery has made both profitable again. Both Freddie and Fannie have paid back roughly $136 billion of their government loans, helping to make this year's federal budget deficit the smallest since President Obama took office.

Freddie will have repaid $41.4 billion of the roughly $71.3 billion it received from taxpayers, once the second-quarter dividend is paid. Fannie and Freddie own or guarantee about half of all U.S. mortgages, worth about $5 trillion. Along with other federal agencies, they back roughly 90 percent of new mortgages.

Neither Fannie and Freddie directly make loans to borrowers; they buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors.

U.S. President Obama proposed this week a broad overhaul of the U.S. mortgage finance system, including winding down Fannie and Freddie. He declared that taxpayers should never again be left "holding the bag" for the mortgage giants' risky moves.

Obama wants to replace them with a system that would put the private sector and not the government, which are primarily at risk for the loans. The government would be involved in both the oversight as well as a last-resort loan guarantor. Obama also wants a guarantee that private lenders will make sure homeowners have access to 30-year fixed mortgages.

Nearly all of Freddie's second-quarter profit is going back to the government. Under a federal policy adopted last year, Fannie and Freddie must turn over their entire net worth exceeding $3 billion in each quarter to the Treasury. Freddie said its net worth in the second quarter was $7.4 billion.

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