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Fannie, Freddie post profits in 3Q; pay dividends

By WTOP Staff

MARCY GORDON
AP Business Writer

WASHINGTON (AP) — Government-controlled mortgage companies Fannie Mae and Freddie Mac posted profits for the July-September period as the U.S. housing market continued to recover. Gains in recent years have enabled them to fully repay their government aid after being rescued during the financial crisis in 2008.

Fannie Mae reported Thursday that it earned $3.9 billion in the third quarter. Washington-based Fannie will pay a dividend of $4 billion to the U.S. Treasury next month. With its previous payments totaling $134.5 billion, Fannie has more than fully repaid the $116 billion it received from taxpayers.

Freddie Mac posted net income of $2.1 billion for the latest quarter. Freddie, based in McLean, Virginia, will pay a $2.8 billion dividend to the government. Freddie will have paid $91 billion in dividends, exceeding its government bailout of $71.3 billion.

Freddie had fully repaid as of last year’s third quarter, and Fannie as of the fourth quarter of 2013.

The government bailed out Fannie and Freddie at the height of the crisis in September 2008 when both veered toward collapse after piling up losses on risky mortgages in the housing market bust. Together the companies received taxpayer aid totaling $187.3 billion.

The gradual recovery of the housing market has made Fannie and Freddie profitable again. Their repayments of the government loans helped make last year’s federal budget deficit the smallest in five years.

The market’s revival beginning in 2012 has been fitful, and housing has lagged behind the rest of the economy. The market remains hampered by tight mortgage credit, rising home prices and stagnating incomes.

Together Fannie and Freddie own or guarantee about half of all U.S. mortgages, worth about $5 trillion. Along with other federal agencies, they back roughly 90 percent of new home loans.

The two companies don’t directly make loans to borrowers. They buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. That helps make loans available.

The latest reports of profitable quarters for Fannie and Freddie came two days after midterm elections that throw control of the Senate to Republicans. The transfer of majority power in the Senate could affect work on legislation to phase out the two companies, and instead use mainly private insurers to backstop home loans.

Two key senators reached agreement in March on a bipartisan proposal that was endorsed by the Obama White House, but it has stalled in Congress.

The senators’ plan would create a new government insurance fund. Investors would pay fees in exchange for insurance on mortgage securities they buy. The government would become a last-resort loan guarantor.

With the chairmanship and majority membership of the Senate Banking Committee expected to switch from Democrats to Republicans, lawmakers may end up reworking the proposal.

President Barack Obama has proposed a broad overhaul of the U.S. mortgage finance system — including winding down Fannie and Freddie. The goal is to replace them with a system that would put the private sector, not the government, primarily at risk for the loans.

Last month, the head of the federal agency overseeing Fannie and Freddie announced an agreement between the companies and major banks that could expand lending. Mel Watt, director of the Federal Housing Finance Agency, said the deal clarifies conditions in which banks could be required to buy back mortgages they sell to Fannie and Freddie for misrepresenting the loans’ risks.

Fannie’s earnings of $3.9 billion in the third quarter was down 55 percent from $8.7 billion in the same period of 2013. Earnings for Fannie and Freddie can fluctuate widely due to changes in interest rates and home prices. Fannie said Thursday it expects to remain profitable “for the foreseeable future.”

Freddie’s net income of $2.1 billion was far smaller than the $30.5 billion it earned in the third quarter of 2013. But the year-earlier amount reflected an accounting move that allowed Freddie to capitalize on tax benefits it had saved up from its losses on mortgages during the financial crisis.

Under a federal policy, Fannie and Freddie must turn over their entire net worth above $2.4 billion in each quarter to the Treasury. Fannie and Freddie said their net worth in the third quarter was $6.4 billion and $5.2 billion, respectively.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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