Freddie Mac reported a sensational third quarter, with earnings so strong it was able to forgo any draw on Treasury funds.

By Peter Ricci

Embattled GSE Freddie Mac reported a monster third quarter in its latest financial report, with a net income of $2.9 billion that will allow the firm to avoid drawing additional funds from the U.S. Treasury.

It was some of the best news yet for Freddie, which has relied on tens of billions of taxpayer dollars to stay afloat sine entering conservatorship during the height of the housing downturn.

Freddie Mac – Improving Financial Situation

The scenario is one we predicted several months back, where the finances of Freddie would gradually improve as its post-bubble portfolio began to make up more and more of its balance sheet. According to its financial report:

• Freddie’s post-2008 book of business is now 60 percent of its single-family guarantee portfolio.
• Delinquency rates remained below industry benchmarks, with the single-family rate at 3.37 percent and the multifamily rate at a nonexistent 0.27 percent.
• And those numbers were further reflected in Freddie’s balances – in addition to the aforementioned net income of $2.9 billion, its comprehensive income was $5.6 billion, which allowed Freddie to pay the $1.8 billion of dividends it owed the Treasury and avoid additional funds.

What is the Future of Freddie Mac?

Donald H. Layton, the CEO of Freddie Mac, said that the firm’s stellar third quarter had a number of economic factors to thank, including “the continued improvement in the housing market, as well as our ongoing efforts to minimize losses on our legacy book.”

Freddie’s report also made one other fact clear – its contributions to the U.S. housing market remain overwhelming going in to 2012. In the third quarter alone, Freddie provided $1.6 trillion in funding to the mortgage market, which financed 1.4 million home purchases, 5.6 million refinancings, and 1.1 million units of multifamily rental housing.

GSE reform has been a big policy position for both Demorats and Republicans, but with Freddie’s support for housing so massive – and with its books showing increasing health – will there be less incentive to reform the system?