Wednesday, May 8, 2013

Market Update from Mike Kuta " The Squawk Trader "

May 08, 2013
Freddie Mac posts second-biggest profit in its history.
Freddie Mac, the No. 2 provider of U.S. mortgage money, posted its second-largest quarterly profit in company history in the first quarter due to rising home prices, falling mortgage delinquencies and increased refinance activity. For the first three months of the year, the government-controlled company today reported net income of $4.6 billion, up from $577 million in the year-ago quarter. It was the company’s sixth straight quarter of profits. Freddie Mac, which faced insolvency when it was seized by the U.S. government in 2008, paid $5.8 billion to the U.S. Treasury Department in the first quarter as a dividend payment under the terms of its government bail-out. It said it would face another $7 billion payment in June based on its current net worth. The profit for the first quarter allowed the company to avoid drawing more funds from U.S. taxpayers. Freddie Mac and its larger rival Fannie Mae, which together own or guarantee about half of U.S. home loans, have been sustained by taxpayer support since September 2008, when they were placed in a government conservatorship.
The return to profitability of the two state wards has taken the heat out of efforts to lay a new base for the future of the nation’s housing finance system. The Obama administration outlined three broad approaches in 2011, but has stopped short of saying which route it would prefer. Meanwhile, lawmakers in Congress – both Democrats and Republicans – think Fannie Mae and Freddie Mac should eventually be wound down, but there is no agreement about what should take their place or how large a role the government should play in making sure mortgage credit is available. The companies have drawn $187.5 billion from the Treasury since being seized. Freddie Mac has now paid $29.6 billion in dividends to the Treasury since conservatorship began. Fannie Mae, which has yet to post its first-quarter results, reported 2012 net income of $17.2 billion, its largest annual profit ever and the first in six years. Under new bailout terms that went into place this year, Freddie Mac and Fannie Mae must turn over most of their profits to the government. Previously, the two were required to pay a 10 percent dividend.
Bank loans drop, even as profits jump.
It was another good quarter for banks, but they’re not quite fixed. The credit crunch may be over, but we are crawling our way out. After rising for all of last year, bank lending dropped in the first three months of the year, according to FDIC data compiled by bank research firm Bankregdata.com. The drop comes as low interest rates are squeezing how much money banks can make from their traditional loan business. More bad news for student loan borrowers. That wasn’t enough to halt the recent rise in bank bottom lines, though. Banks earned more in the first quarter than in any three-month period since the downturn. Collectively, U.S. banks earned $40.3 billion. That was up $5.5 billion from a year ago. Profits rose, even as banks appeared to be lending less. U.S. banks had $44 billion less in loans at the end of the first quarter than they did three months before. There is some seasonality to the numbers. The biggest drop was in credit card borrowing, which normally falls in the first three months of the year. But home loans were off, too. That’s probably a result of higher interest rates in the first month or so of the year. Rates have fallen since, so mortgage lending could be rising again. Other categories of lending, though, were up. Business lending rose $24.2 billion. Consumers took out an additional $5.6 billion in auto loans in the first three months of the year.
 
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