Fannie Mae Posts 'Solid' Q1, Should Continue To Be Profitable

Federal National Mortgage Association FNMA reported net income of $2.77 billion in Q1, falling a bit short of Wall Street expectations.

However, the government sponsored entity and its cousin Federal Home Loan Mortgage Corp FMCC delivered yet another quarter of profits, fueling investors’ calls for the GSEs to be released from government control.

According to Height Securities' Edwin Groshans, Fannie Mae’s light income total in Q1 came as a result of fewer refinancings in Q1.

“Overall, Fannie Mae posted a solid quarter and its core operations indicate that the company will continue to be profitable for the foreseeable future,” Groshans explains.

Related Link: Steve Mnuchin Wants To Reform Fannie And Freddie, But It Might Not Happen Before 2019

Unfortunately, as long as Fannie Mae and Freddie Mac remain under government conservatorship, shareholders will not see a dime of those huge profits. Fannie Mae reports that it expects to pay its $2.78 billion net-worth sweep dividend to the Treasury by the end of June.

For Fannie and Freddie shareholders, another quarter of huge profits is a silver lining around what is otherwise a bleak outlook. For control of Fannie and Freddie to be potentially be turned back over to shareholders, the two GSEs would first need to undergo a long period of recapitalization. Large profits would theoretically determine how long that process could take.

Height Securities estimates the best-case scenario for Fannie and Freddie shareholders still isn't that great. Last week, Groshans said Congress might not complete housing reform until 2019. If they in fact choose to return control to shareholders at that point, Groshans estimates it could take 5-21 years to get Fannie and Freddie recapitalized.

The Senate Banking Committee has a hearing on housing finance scheduled for May 11.

Posted In: Edwin Groshansgovernment-sponsored enterprisesGSEGSEsHeight SecuritiesAnalyst ColorPoliticsTop StoriesAnalyst RatingsGeneral