Fannie Maeis no longer bleeding cash, at least for now.
After devastating losses since 2008, the mortgage giant reported its second straight quarter of positive net income, even after making a $2.9 billion dividend payment to the U.S. Treasury. Fannie Mae has taken $117.1 billion from the Treasury since the fall of 2008.
Improving home prices and decreasing mortgage delinquencies have helped to boost the bottom line, but Fannie Mae's CEO Tim Mayopoulos, who took the reigns of the company earlier this summer, says he's not convinced housing is out of the woods yet.
"I think it's too early to declare a national housing recovery,"Mayopoulos said in an interview Wednesday on CNBC. "What's driving our results has been home price improvements. We are not expecting to see huge improvements going forward."
Fannie Mae reported net income of $5.1 billion in the second quarter of this year, up from $2.7 billion in the first quarter. Foreclosures, however, still weigh heavily on the balance sheet, despite the far higher quality of loans in the new book of business since 2009. 59 percent of Fannie Mae's single-family guaranty book of business as of the end of the second quarter consisted of loans it had purchased or guaranteed since the beginning of 2009.
Expectations of an improving housing market prompted Fannie Mae to reduce its future loan loss reserves to $68 billion from nearly $77 billion in the first quarter. The company notes in its report that it believes credit-related expenses will be lower in 2012 than in 2011. Mayopoulos, again, seems to hedge that somewhat.
"We are very excited about the new book of business we've been writing since the beginning of the crisis. We believe that we could be profitably going forward but it doesn't mean we will necessarily make enough every quarter to be able to cover the entire dividend payment to the Treasury," said Mayopoulos, who added that he is very comfortable with where Fannie Mae's underwriting standards are now, despite criticism from housing industry players who claim credit is too tight.
Mayopoulos expects home prices to bounce around more before finding a solid bottom, and that will in turn keep millions of borrowers, around 11 million by several recent accounts, in a negative equity position, owing more on their mortgages than their homes are currently worth. The Obama administration has been pushing hard for Fannie Mae and Freddie Mac to participate in the government's program that pays lenders to reduce balances on troubled loans. Last week, however, Fannie Mae and Freddie Mac's conservator, FHFA director Edward DeMarco, said the mortgage giants would not participate in that program.
"We are comfortable with where Director Demarco came out. We believe that we have the tools here at Fannie Mae to really help homeowners in terms of doing modifications and to help people who are in distress," Mayopoulos said.
Fannie Mae completed 35,332 loan modifications in the second quarter, down from 46,671 in the previous quarter. It also approved just over 24,000 short sales and deeds-in-lieu of foreclosure, up from just over 22,000 in the previous quarter. Refinances were far higher, with Fannie Mae acquiring 247,000 of those loans in the quarter.
Fannie Mae still has over 109,000 foreclosed properties on its books, despite selling more of them than they took in during the quarter. Its foreclosure rate is falling as are its loan delinquencies, but the legacy losses are still quite large. Fannie Mae has been experimenting with bulk sales of foreclosures as well as bad loans to investors.
As for the future of the mortgage giant, which along with Freddie Mac and FHA accounts for around 90 percent of all new mortgage originations, Mayopoulos said he would leave that to policy makers. Until then, he is somewhat hopeful that Fannie Mae will continue on its own path to recovery.
"We do think over the long term Fannie Mae can have strong profitability and can return a considerable amount of value to taxpayers, but over the next few quarters I think it's going to really depend on housing prices and other factors."