Fannie Mae hands $10bn profits straight to government

Fannie Mae, the US government-backed mortgage financier, will have to pay the Treasury Department $10.2bn (£6.6bn) after a sharp rise in home prices pushed second quarter net income up to $10.1bn.

This latest payment in the form of dividend on the preferred stock held by the Treasury, will bring total dividend payouts to the government to $105bn. This compares to the $117.1bn of aid the company has received.

Chief executive Tim Mayopolous attributed Fannie Mae’s success to a 4.1 per cent increase in house prices over the quarter, which allowed the firm to reduce loan loss reserves.

This comes the day after Freddie Mac reported a net income of $5bn in the same period and said it would pay a $4.4bn dividend to the government. It will have now paid $41bn after taking $72bn.

The two companies were seized by US regulators in September 2008, shortly before the failure of Lehman Brothers and the rescue of American International Group. This year, they stopped paying ten per cent dividends and now give over any profits to the Treasury above a certain capital reserve.

On Tuesday, president Barack Obama called for the two companies to be replaced with a government mortgage reinsurer, which would sustain losses only in catastrophic circumstances.

Mayopolous has said debate over housing finance reform should not be slowed by the profitability of Fannie Mae and Freddie Mac, but did say that any reform would likely “take a number of years to achieve”.