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Freddie Mac Profit Surges to $4.6 Billion

Dow Jones Business News

-- The first-quarter profit was the second-largest in the company's history

-- Freddie will make a $7 billion dividend payment to the U.S. Treasury next month

-- Freddie executives said the company hadn't yet met certain triggers needed to write-up the tax assets

Freddie Mac (FMCC) on Wednesday reported a $4.6 billion first-quarter profit, the second-largest in the company's history, as rising home prices, falling mortgage delinquencies and low interest rates continued to support the rescued mortgage-finance company's turnaround.

Freddie will make a $7 billion dividend payment to the U.S. Treasury next month. While the company isn't allowed to pay off the $71.3 billion in bailout money it received beginning five years ago, the latest payment brings to $36.6 billion the amount of dividends it will have returned to the Treasury, leaving its net cost to taxpayers at $34.7 billion.

"Not surprisingly, the strong rebound in the housing market...continued to be reflected in our excellent financial performance in the first quarter," said Donald Layton, Freddie Mac's chief executive.

Freddie's first-quarter profit compares with a year-earlier gain of $577 million and marked the sixth straight quarter in which the company has turned a profit. The rising fortunes of Freddie and its larger sibling, Fannie Mae (FNMA), have hinged on a broad-based improvement in the housing market and steady declines in the rate of mortgage delinquencies.

The cost of the government's bailouts of Fannie and Freddie have fallen amid the housing market's revival and following changes made at the beginning of the year to force the companies to send almost all of their profits to the Treasury as dividend payments. The bailout tab has declined to about $120 billion after including the most recent dividend payment by Freddie, from a high of $151 billion at the end of 2011.

The fact that Fannie and Freddie are throwing off large profits, nearly all of which are being swept away by the Treasury, could reshape the debate over how and when to restructure the firms, which were taken over by the government in 2008 through a legal process known as conservatorship.

"We are very clear here inside the company that our future is in the hands of policy makers in government. That's a point we make to everyone," said Mr. Layton.

Fannie Mae, which has yet to report its first-quarter earnings, could make an even larger payment to the U.S. Treasury if it concludes that certain conditions have been met to justify reversing write-downs of tax assets that led to tens of billions in losses when they were written down four years ago.

Freddie executives on Wednesday said the company hadn't yet met certain triggers needed to write-up the tax assets. "We're sort of not even getting to first base yet," said Mr. Layton. The company could hit those financial triggers "as early as next quarter," he said, after which executives and the company's auditors would still have to make subjective judgments about the prospects for the company's future profitability.

Write to Nick Timiraos at [e-mail]