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Investments / The Ticker

Is it over for GSE investors?

Fannie and Freddie profits taper off

Freddie Mac_building

Fannie Mae and Freddie Mac each reported profits for the second quarter that were much smaller than the record levels logged earlier, and as a result, one article in The Wall Street Journal argues investors should start pulling out. 

Last week, Fannie Mae recorded a net income of $3.7 billion for the second quarter of 2014.

This is a drop compared to $5.3 billion in the first quarter of 2014, primarily due to a decline in the amount of income recognized from settlement agreements related to private-label mortgage-related securities sold to Fannie Mae.

Meanwhile, Freddie Mac reported net income of $1.4 billion for the second quarter of 2014, compared to $4 billion for the first quarter of 2014, with the sharp drop driven primarily by lower income from legal settlements related to private-label securities.

The GSE also reported comprehensive income of $1.9 billion for the second quarter of 2014, compared to $4.5 billion for the first quarter of 2014.

Due to this, the article stated that there is far less at stake in the battle between the government and fund managers who own shares of the companies. While in the past the difference between the sweep and the 10% dividend was tens of billion of dollars last year, it is now far smaller.  

Source: WSJ
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