Freddie Mac Ekes Out Profit Despite Derivative Losses

Freddie Mac reported another profitable quarter to end 2014, even as losses stemming from derivatives put heavy drag on the mortgage giant's earnings.

For the last three months of 2014, Freddie pulled in $227 million in net income, the company said Thursday, a drop of nearly $2 billion from Q3. The sharp drop came from derivative losses, which totaled $3.4 billion for the quarter as interest rates fell.

Freddie's fourth-quarter profit only make up a fraction of what it will pay to the government in March. Per the terms of its bailout agreement, the company will hand $900 million over the Treasury, bringing its total payback to $91.8 billion—nearly $20 billion more than what it was forced to draw to keep from going under.

The agreement, which was amended in 2012, stipulates that both Fannie and Freddie must continue paying Treasury dividends based on their net worth, even after they've repaid taxpayers in full. It remains a source of consternation for politicians, who are still grappling with how to separate the government from the mortgage market, and shareholders, who have brought suits against the government for their share of the companies' profits.

For all of 2014, Freddie Mac reported $7.7 billion in net income, a drop from $48.7 billion in 2013. 2013's results were boosted by an accounting charge and benefits from securities settlements.

All things considered, 2014 "marked another year of solid financial and operating performance" for Freddie Mac, said CEO Donald Layton.

"We made tremendous progress in materially reducing taxpayer exposure to risk, increasing market share between the GSEs through improved customer focus and service, and making our operations better through innovation and efficiency," Layton said in the company's earnings release.

Credit quality continued to improve at the GSE, with post-2008 vintages making up 60 percent of its single-family credit guarantee portfolio as of year-end.