July 31, 2019 / 5:27 PM / a month ago

Freddie net income falls, to pay U.S. $1.8 billion in dividends

(This July 31 story corrects to say “expects to pay” instead of “will pay” in first paragraph)

NEW YORK (Reuters) - Freddie Mac’s net income fell in the second quarter from a year-ago due to derivative losses, while it expects to pay the U.S. Treasury Department $1.8 billion in dividends by September, the mortgage finance agency said on Wednesday.

Its income totaled $1.506 billion in the second quarter, down from $2.503 billion in the same quarter in 2018.

Freddie’s common share price fell to the lowest since mid-January on above-average volume.

Losses on its derivatives, which Freddie uses to hedge the risks on the loans and securities it owns and guarantees, reached $2.089 billion in second quarter. A year earlier, its derivatives recorded a gain of $416 million.

Its derivatives lost value due to a bigger drop in interest rates in the second quarter from the first quarter, the McLean, Virginia-based company said.

Thirty-year mortgage rates fell near three-year lows last week at 3.75%, down from 4.54% from a year earlier, according to Freddie Mac.

Home borrowing costs will likely stay low as traders anticipate the Federal Reserve will lower key lending rates for the first time in a decade. Traders bet the Fed policy-makers would lower short-term rates by at least a quarter-point to counter risks from trade tensions and sluggish inflation.

In September 2008, the government took control of Freddie and Fannie Mae (FNMA.PK) in a $187 billion bailout during the global credit crisis after they were exposed to soured subprime mortgages. The two government-sponsored enterprises have handed over their profits to the U.S. Treasury under the terms of the conservatorship.

The two agencies make money by charging fees to guarantee home loans made by banks and other lenders. They also earn income from investing in mortgages and related securities.

Mark Calabria, director of the Federal Housing Finance Agency which regulates Fannie and Freddie, told Reuters last week he hoped the two GSEs would be ready to exit conservatorship within five years.

Fannie is scheduled to release its second-quarter results on Thursday.

On Wednesday, Freddie’s common stock was down 10% at $2.07, while Fannie fell nearly 12% at $2.075, a level not seen since January.

Reporting by Richard Leong; Editing by Cynthia Osterman

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