In 2011 Fannie Mae lost $16.9 billion. In 2012, it made a record profit of $17.2 billion. Ever since the government had to bail out Fannie Mae and Freddie Mac, there has been pressure to get the government out of the housing market all together. But these record profits make it more difficult for a cash strapped U.S. government to ax Fannie and Freddie.
Steve Cook is the editor of Real Estate Economy Watch. He says Fannie’s record profits are the result of three factors. “Number one, 2012 was a record year for financing in the mortgage lending business,” says Cook.
Number two, all those foreclosed houses that were big liabilities to Fannie and Freddie are now valuable, thanks to investors who are buying them up in huge numbers.
“And then finally,” Cook says, “Fannie and Freddie are the only two sources of ways to securitize mortgages today.” So if you are a lender and you want to sell your mortgages to someone else, that’s Fannie and Freddie.
Even though Fannie and Freddie are repaying the federal government for the bailout and helping stabilize the housing market, there is still pressure to get the government out of the mortgage business altogether.
“The notion of having a housing related program that’s supporting the mortgage market and homeowners as well as plowing significant money into the government makes it much harder to talk about closing them down,” says Guy Cecala, the publisher of Inside Mortgage finance.
But can we really expect Fannie and Freddie to remain profitable? This is, after all, the housing market — the poster child for boom and bust. Should we believe Fannie and Freddie when they say there is nothing but smooth sailing ahead?
Cecala says, yeah, actually we should, for two reasons. One, they’ve already worked though most of the problem loans that caused the crisis. And second, says Cecala, “Pretty much all the mortgages they have been guaranteeing over the last two years are very pristine with very, very low risk characteristics.”
Fannie and Freddie’s combined profits for 2012 were about $30 billion. Secala expects that number to double in 2013.