Freddie Mac to Send $3.9 Billion to Treasury Department

Mortgage-finance company Freddie Mac will send the U.S. Treasury Department $3.9 billion in September, after posting a sharp increase in profit during its second quarter.

The company said net income grew to $4.17 from $1.36 billion in the prior-year period. The profit was driven by net interest income of $3.97 billion, up 13% from $3.5 billion a year earlier. Interest-rate volatility also drove $3.1 billion in derivative gains.

Freddie, along with mortgage-finance firm Fannie Mae, was put into a conservatorship by the U.S. government in September 2008 after crisis-era losses.

Freddie received about $71.3 billion in support from the Treasury. After the expected September payment, Freddie will have paid back $96.5 billion.

Freddie doesn't make loans, but buys them from lenders, wraps them into securities and guarantees to make investors whole if the loans default.

As policy makers continue to debate the future of the companies, Freddie and Fannie are slowly reaching what could be described as a normal operating environment. Although the companies' profits had been partly driven by large postcrisis settlements with lenders on crisis-era mistakes, much of that is behind them.

Likewise, as home prices have risen and borrowers' credit quality has improved, Freddie has seen fewer defaults. Freddie said its single-family serious delinquency rate was 1.53%, down from 2.07% a year earlier.

Freddie Mac and Fannie Mae have come under scrutiny recently after their regulator awarded the companies' chief executives multimillion-dollar pay increases. Last week, the House Financial Services Committee approved a bill that would limit the CEOs' pay to $600,000 a year.

Write to Chelsey Dulaney at [e-mail]

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