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NEW YORK, May 5 (Reuters) - Fannie Mae, the largest U.S. mortgage guarantor, said on Friday its net income fell to $2.8 billion in the first quarter from $5.0 billion the prior quarter as steadier market interest rates led to a small derivatives loss, which offset gains linked to stronger home prices.
The Washington-based government-sponsored enterprise said it will pay the U.S. Treasury Department $2.8 billion in dividends in June, down from the $5.5 billion payment it made in March.
U.S. bond yields, mortgage rates and other market interest rates jumped after President Donald Trump's surprise election win in November as investors anticipated higher inflation driven by rapid enactment of tax reform, looser regulations and infrastructure spending. Investors have scaled back expectations on the implementation of those programs since January, however, and the rates have retreated from fourth-quarter peaks.
The U.S. housing market remained resilient as tight home supply around the country has offset higher borrowing costs, analysts said.
Both the market and our operations continued to strengthen, and our progress was reflected in another profitable quarter," Timothy Mayopoulos, Fannie Mae's president and chief executive officer, said in a statement.
The government took control of Fannie Mae and Freddie Mac in 2008 in a $187 billion bailout as their investments soured after the U.S. housing market collapse. Their conservatorship requires them to hand over their profits to the government.
Fannie Mae and its sibling agency Freddie Mac make money from guarantee fees on home loans that are repackaged into securities for sale to investors. They also earn income from investments in mortgage loans and securities.
Fannie Mae earned $5.3 billion in net interest income and $249 million in fees and other income in the first quarter.
In the fourth quarter, it had booked $5.8 billion in interest income and $414 million in fees and other income.
Fannie saw large swings in two key items. It recorded a fair-value loss of $40 million on derivatives versus a $3.9 billion gain in the prior quarter, but booked a $179 million credit-related gain due to stronger home values compared with a $1.44 billion fourth-quarter loss stemming from a jump in interest rates.
Earlier this week, Freddie reported $2.2 billion in net income in the first quarter, down from $4.8 billion in the fourth quarter.
Through the first quarter, Fannie has paid the Treasury $159.9 billion in dividends while Freddie has sent $108.2 billion.
U.S. Treasury Secretary Steve Munchin has said in recent days the Trump administration seeks to take up an overhaul of the mortgage agencies by 2018.
In early Friday trading, Fannie shares were up 1.8 percent at $2.77 and Freddie stock was up 2.9 percent at $2.67. (Reporting by Richard Leong; Editing by Chizu Nomiyama and Meredith Mazzilli)