WASHINGTON — Just when it looked like Fannie Mae and Freddie Mac had become cash cows for the government, one-time items in their 2013 financials are raising questions about their future profitability.

In reporting their results last week, Fannie and Freddie executives warned that the 2013 level of income is not sustainable. Freddie reported $48.7 billion in net income for the full year and Fannie reported $84 billion. One-time events such as the recognition of deferred tax assets added $23.4 billion to Freddie's bottom line and $50.6 billion to Fannie's.

The level of profitability is a major factor in the housing finance reform debate. One side wants to wind down Fannie and Freddie and replace them with a new housing finance system where the private sector bears more of the credit risk. But some want to preserve or recapitalize Fannie and Freddie, and will point to the government-sponsored enterprises' recent strong financial performance as a key reason why.

But Karen Shaw Petrou, managing partner of Federal Financial Analytics, claims the two GSEs are barely profitable.

"Our analysis removes the one-offs from the 2013 results. When you do that, you show the two giant companies are scraping along," she says. If the GSEs were required to hold a reasonable amount of capital, such as 5%, "they go upside-down again," she added.

Aside from the deferred tax assets, many other one-time items boosted the GSEs' earnings. These include settlements over representation and warranty claims and with major financial firms that sold Freddie and Fannie private-label securities before the subprime mortgage bust.

With all the one-time items that contributed to earnings, "it leaves you wondering what the real run rate is," says Edward Mills, a policy analyst with FBR Capital Markets.

Donald Layton, Freddie's chief executive, stressed that his company is benefiting from rising house prices and declining delinquency rates. That was a key reason why Freddie moved $2.5 billion from loss reserves into income.

"It is our expectation the peak of recoveries from the Great Recession has now passed and such items will be smaller in 2014," the CEO told reporters during a conference call Thursday.

A lot will depend on what happens with guarantee fees and credit standards. Former Federal Housing Finance Agency acting director Edward DeMarco raised g-fees during his watch and new FHFA director Mel Watt is expected to lower them and expand credit so more borrowers can purchase homes.

"The question is where do you draw that line? Should the default rate be 2% or 3%? What level of losses are they willing to accept?" Mills says. "All of those things are very important in terms of determining the future profitability of these enterprises."

However, the big profits Fannie and Freddie reported may lead people to conclude that the GSEs can continue to operate as they are. They look like giant "mortgage vacuum cleaners" that pay quarterly dividends to Treasury and reduce the federal deficit, Petrou says.

That leaves the GSEs dependent on Treasury to prop them up again if anything goes wrong. "Without the capital requirements, one puff of a cold wind and they are back in the Treasury's lap," Petrou warns.

One reason the GSEs might continue to generate strong profits is that the mortgages they took on since the housing crash are performing exceptionally well.

"The GSEs hold some of the most pristine mortgages that have ever been made and they are never going to default. They are going to throw off a lot of cash," Mills says. Freddie's new single-family books of business (originated in 2009 through 2013) have a ridiculously low serious delinquency rate. Only 0.24% of the $888 billion new loans are 90 days or more past due or in foreclosure.

Timothy Mayopoulos, Fannie's CEO, acknowledged as much during an earnings call last month. "We have come through a cycle where the quality of the loans has been extremely high," he said.

The Obama administration and Treasury Department are opposed to recapitalizing the GSEs. The administration is supporting Senate Banking Committee leaders who are working on reform legislation that would create a new secondary market agency to replace the GSEs. Some details on their bill are expected to be released soon.

Big profits at Fannie and Freddie would make it harder to pass GSE reform, says financial analyst Bert Ely, of Ely & Co. in Alexandria, Va.

At the same time, some hedge funds have taken an interest in GSE reform and want a place at the table. That is a "real recipe for paralysis," Ely says.

Last week, a federal claims court judge ruled that Fairholme Capital Management could conduct discovery to assess the profitability of Fannie and Freddie.

Treasury officials have told the court that the future profitability of the GSEs is unknown. But Judge Margaret Sweeney of the U.S. Court of Federal Claims agreed with Fairholme that more information is needed to resolve the issue.

"Discovery will enable plaintiffs to confirm such evidence exists with regard to profitability and additionally answer the question as to when, and how, the conservatorship will end," the judge said.

The hedge fund owns Fannie and Freddie preferred stock and it wants to take over Fannie and Freddie's securitization business and leave the U.S. government with the GSEs' current books of guaranteed loans and their mortgage investment portfolios.

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