WASHINGTON -- Fannie Mae said something Thursday that would have been unthinkable a few years ago: It earned a record $58.7 billion profit in the January-March quarter.
And it made clear it's on the cusp of repaying taxpayers for one of the most expensive bailouts of a single company in the financial crisis.
For Fannie, the future hasn't looked this bright since 2006.
More Americans are buying homes. Prices are rising at their fastest rate since the housing bubble burst. Banks are lending only to the most qualified buyers. And many fewer homes are falling into foreclosure.
All of that is a boon to Fannie and its smaller sibling Freddie Mac, which own or guarantee half of all U.S. mortgages and back nearly 90 percent of new ones. When people buy homes and nearly all pay their mortgage bills, Fannie and Freddie can't help but make piles of money.
And it's a big reason Fannie decided the time was right this year to capitalize on the tax benefits of the bad loans it absorbed during the crisis.
On Thursday, Fannie said that it applied tax credits it had saved from its losses on delinquent loans suffered during the crisis to its first-quarter earnings. By applying those credits to its 2013 taxes, Fannie reduced what it owed the government and boosted its profit.
The result: Fannie made more money from January through March than it had in any other quarter. Of the $58.7 billion earned, nearly $51 billion came in part from using the tax credits. That followed $17.2 billion in profit earned last year. And Fannie says it expects to stay profitable for "the foreseeable future."
Nearly all of that money is going back to the government, which rescued Fannie and Freddie during the 2008 financial crisis with a combined $187 billion in taxpayer-funded loans.
Under a federal policy adopted last summer, Fannie and Freddie must turn over their entire net worth above $3 billion in each quarter to the Treasury. Fannie said its net worth in the first quarter was $62.4 billion.
Fannie will pay a dividend of $59.4 billion to the U.S. Treasury next month. Once that's paid, Fannie will have repaid $95 billion of the roughly $116 billion it received.
Freddie is also profitable again. It reported Wednesday that it earned $4.6 billion in the first quarter and will pay a dividend of $7 billion to the Treasury next month. Once that's collected, it will have paid back roughly $37 billion of the $71.3 billion it received.
Fannie and Freddie don't directly make loans. Rather, they buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. In doing so, they help make loans available and exert influence over the housing market.
For Fannie and Freddie, a better housing market means fewer delinquent loans on their books. The companies are also charging mortgage lenders higher fees to guarantee the loans. With more loans and higher fees, Fannie and Freddie are earning more.
Fannie and Freddie are also taking on less risk than during the pre-crisis years. That's because banks are requiring higher credit scores and larger down payments from prospective buyers.
With money coming in again, Fannie approached federal regulators and its auditors in recent months to work out the best timing for using the tax benefit from its previous losses.
Companies sometimes use losses to reduce their tax burden when they become profitable. Another company that received a big bailout in the crisis, major insurer American International Group Inc., for example, had a tax reduction worth $17.7 billion in late 2011. AIG repaid the $182.5 billion bailout over the years and the Treasury sold the stock in AIG in December, severing its final financial link to the company.
Freddie CEO Donald Layton said the company could consider making an accounting change similar to Fannie's as soon as the April-June quarter.
The Obama administration proposed a plan in 2011 to slowly dissolve Fannie and Freddie, with the goal of shrinking the government's role in the mortgage finance system. But Congress hasn't yet decided how far the government's role should be reduced.
The return to profitability of Fannie and Freddie -- and the money they're able to return to the government -- may give the administration "cold feet" about winding down the companies, said Anthony Sanders, a real estate finance professor at George Mason University.