Do Record Profits Mean An End to Fannie Mae Conservatorship?

Government mortgage giant credits housing recovery for improvement in its financial outlook.

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The Fannie Mae headquarters is seen in Washington. Fannie Mae earned $17.2 billion in 2012, the biggest annual profit in the U.S. mortgage giant's history.

Almost five years after taxpayers bailed out Fannie Mae in the wake of the housing bust, the beleaguered mortgage financier reported its largest annual profit in company history thanks to a steadily improving housing market and fewer mortgage delinquencies.

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The mortgage giant—which has been under government conservatorship since 2008 when it lost billions on bad home loans—earned a record net income of more than $17 billion in 2012 according to the company's earnings report released Tuesday. That's a complete reversal from a net loss of almost $17 billion in 2011, an improvement that allowed Fannie Mae to cut an almost $12 billion check to the U.S. Treasury Department. Since 2008, Fannie Mae has paid back taxpayers $35.6 billion of the $116 billion in bailout funds it has received.

"Solid business fundamentals such as improving performance of our book of business and improvements in the housing market led us to report the largest annual and quarterly net income in the company's history," said Susan McFarland, executive vice president and chief financial officer, in a statement. "We expect to remain profitable for the foreseeable future and return significant value to taxpayers."

But just because Fannie Mae is profitable doesn't mean there's an end to its government conservatorship in the near future. According to Fannie Mae spokesman Pete Bakel, that's a policy decision lawmakers must address when it comes to how housing finance will look in coming years.

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"It's an important decision about how to structure the institution and how to attract capital," Bakel added, noting that the two government-sponsored enterprises Fannie Mae and Freddie Mac back a combined 85 percent of new mortgage originations.

Providing liquidity to an otherwise super-tight market has been a main role for the GSEs in the wake of the housing- and mortgage-market meltdowns. Both Fannie Mae and Freddie Mac buy mortgages written by lenders and then bundle them into securities with guaranteed principal and interest payments, virtually the only way lenders will make loans these days. Since January 2009, Fannie Mae has injected more than $3 trillion into the housing market through financing for 2.7 million home purchases, 9.7 million mortgage refinancings, and 1.7 million multifamily housing units, according to the company's earnings report.

"Private capital hasn't come back into the market yet, so we are doing a lot to support [the mortgage market] right now," Bakel says.

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