FANNIE MAE AND FREDDIE MAC EXPLAINED.

I just read this interesting and well written article about what Fannie Mae and Freddie Mac. I suspect a lot of others like me will enjoy it as these organizations once again play a big part in  the resurging market for homes and home mortgages.  I read it in our Florida Realtors News daily 

"WASHINGTON (AP) – Feb. 20, 2015 – Mortgage giant Fannie Mae reported net income of $1.3 billion for the fourth quarter. That's down sharply from $6.5 billion a year earlier due largely to losses on investments used to hedge against swings in interest rates.

Still, it was the 12th straight profitable quarter for the government-controlled company.

Washington-based Fannie also said Friday that it will pay a dividend of $1.9 billion to the U.S. Treasury next month. Fannie will have paid $136.4 billion in dividends, exceeding the $116 billion it received from taxpayers during the financial crisis.

The government rescued Fannie and smaller sibling Freddie Mac in September 2008.

For Fannie and Freddie, the decline in long-term interest rates last year brought losses on derivatives, financial transactions the companies use to hedge against rate swings.

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.

On Thursday, Freddie posted net income of $227 million for the fourth quarter. That was down sharply from the same period of 2013, as the company sustained losses on the investments it uses to hedge against swings in interest rates. Freddie also said it will pay a dividend of $900 million to the government in March.

Fannie Mae reported net income of $14.2 billion for all of 2014, down steeply from $84 billion in 2013.

Fannie's losses on derivatives reached about $2.5 billion in the fourth quarter and around $4.8 billion in 2014.

The gradual recovery of the housing market has made Freddie and Fannie profitable again.

The market's revival beginning in 2012 has been fitful, and housing has lagged behind the rest of the economy. Despite the low borrowing rates that could lure prospective homebuyers, the market has remained hampered by tight mortgage credit, rising home prices and stagnating incomes.

The federal agency that regulates Freddie and Fannie took action in December to allow consumers to buy homes with downpayments as low as 3 percent, down from the current 5 percent minimum. 

The new guidelines are meant to make houses more affordable for low-income families and first-time buyers."

Today the Dow hit a record high.  Are we blowing bubbles again?  Or returning to a healthy economy?