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Mortgage giant Fannie Mae posts $4.6B profit in 2Q; paying $4.4B dividend to government

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WASHINGTON — Mortgage giant Fannie Mae reported net income of $4.6 billion from April through June, up from $3.7 billion a year earlier. Rising interest rates enabled Fannie to post gains on the investments it uses to hedge against swings in rates.

The second-quarter results released Thursday marked the 14th straight profitable quarter for the government-controlled company.

Washington-based Fannie said it will pay a dividend of $4.4 billion to the U.S. Treasury next month. With that payment, Fannie will have paid a total $142.5 billion in dividends.

Fannie received $116 billion from taxpayers during the financial crisis in September 2008. The government rescued Fannie and smaller sibling Freddie Mac after they suffered huge losses from risky mortgages in the housing market bust.

Together the companies received rescue loans totaling about $187 billion. The housing market's gradual recovery has made Freddie and Fannie profitable again.

Their quarterly dividend payments go to the Treasury but do not reduce the principal of their loans from the government.

Fannie reported it gained $2.6 billion in the second quarter on derivatives, the investments it uses to hedge against swings in interest rates. The company said it expects to remain profitable for the foreseeable future, but that earnings for this year and future years likely will be "substantially lower" than in 2014. Fannie earned $14.2 billion last year. Among the factors in the anticipated reduced earnings is a continued decline in interest income from mortgages held by the company, Fannie said.

PHOTO: FILE - This Aug. 8, 2011 file photo shows Fannie Mae headquarters in Washington. Fannie Mae reports quarterly financial results before the market opens on Thursday, Aug. 6, 2015. (AP Photo/Manuel Balce Ceneta, File)
FILE - This Aug. 8, 2011 file photo shows Fannie Mae headquarters in Washington. Fannie Mae reports quarterly financial results before the market opens on Thursday, Aug. 6, 2015. (AP Photo/Manuel Balce Ceneta, File)

The record-low interest rates of recent years, with the Federal Reserve holding its key short-term rate near zero since 2008, could soon be ending. The Fed is widely expected to raise rates sometime this year, and the only question seems to be when.

A statement the central bank issued last week after ending its latest policy meeting gave no timetable. The Fed signaled that it wants to see further economic gains and higher inflation before raising rates. Many analysts foresee the first hike next month, though Fed Chair Janet Yellen has stressed that any increase will be driven by the latest economic data.

The Labor Department's key report on July employment will be released Friday. Economists believe the U.S. added 225,000 jobs last month.

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 home loans.

The two companies don't directly make loans to borrowers. They buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. That helps make loans available.

On Tuesday, Freddie reported net income of $4.2 billion for the second quarter, up sharply from a year earlier, as it increased its purchases of home loans and sold off greater volumes of riskier mortgages. Freddie will pay a dividend of $3.9 billion to the Treasury next month.

The housing market's recovery over the last three years has been uneven, and it has lagged behind the rest of the economy. Despite the low borrowing rates that could lure prospective homebuyers, the market has remained hampered by tight mortgage credit, rising home prices and stagnating incomes.

A plan to phase out Fannie and Freddie and instead use mainly private insurers to backstop home loans advanced in the Senate last year and was endorsed by the White House. The plan would create a new government insurance fund. Investors would pay fees in exchange for insurance on mortgage securities they buy, and the government would become a last-resort loan guarantor.

No work on the proposal has been done this year in the current Congress, in which Republicans control both the House and Senate as a result of the elections last November.

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