Fannie Mae: Profit Rebound Winner (Update 2)

Updated with market close information, more detail from Fannie Mae's earnings announcement and analyst comments.

NEW YORK (TheStreet) -- Fannie Mae (FNMA) was the winner among the largest U.S. financial names on Wednesday with shares rising 14% to close at 30 cents.

The mortgage giant reported first-quarter net income of $2.7 billion, following net losses of $2.4 billion in the fourth quarter and $6.5 billion during the first quarter of 2011.

Shares of Freddie Mac (FMCC) -- which, together with Fannie Mae was taken under government conservatorship in September 2008 -- rose 9% to close at 29.5 cents.

The broad indexes all declined, as Greece's unresolved political situation following the failure of the conservative New Democracy party to form a new government after winning the most votes in Sunday's election, let to renewed fears of a possible default on sovereign debt and an exit from the euro.

According to a Wall Street Journal report, European leaders considered delaying a payment of 5.2 billion euro to Greece. The payment is part of the 130 billion euro bailout agreement that was settled in March, which many Greek politicians now want to see renegotiated.

The KBW Bank Index (I:BKX) declineed 2% to close at 46.51, with all 24 index components showing declines for the session.

Investors also reacted to rumors that Bankia -- Spain's 4th largest bank -- could be partially nationalized by the government today.

Fannie Mae's shares were up 30% year-to-date as of Tuesday's close at 26 cents, following a 33% drop during 2011.

Adjusting for unrealized losses on available-for-sale securities, net of reclassification adjustments and taxes, Fannie Mae's first-quarter comprehensive income was $3.1 billion, which was "sufficient to pay the first-quarter dividend of $2.8 billion," to the U.S. Treasury, which holds preferred shares in the company valued at $117.1 billion, for taxpayer assistance provided through the fourth quarter.

Fannie announced that it did "not require funding from Treasury for the first quarter of 2012."

The company said that its "total loss reserves, which reflect its estimate of the probable losses the company has incurred on loans in its guaranty book of business, decreased to $74.6 billion as of March 31, 2012 from $76.9 billion as of December 31, 2011," and that it "expects its loss reserves to cover future credit losses on the pre-2009 legacy book of business have reached their peak."

Fannie Mae said that it "remained the largest single issuer of mortgage-related securities in the secondary market in the first quarter of 2012, with an estimated market share of new single-family mortgage-related securities issuances of 51 percent, compared to 54 percent in the fourth quarter of 2011 and 49 percent in the first quarter of 2011."

The company purchased $221 billion in mortgage loans during the first quarter.

Fannie's first-quarter net interest income totaled $5.2 billion, increasing from $4.2 billion in the fourth quarter and $5.0 billion in the first quarter of 2011. Total credit expenses declined to $2.3 billion in the first quarter, from $5.5 billion the previous quarter and $11.0 billion a year earlier.

Kevin L. Petrasic -- a partner in the Global Banking and Payments Systems practice of Paul Hastings, based in the firm's Washington, D.C., office -- says "what these numbers suggest in the near term what this suggests is that there is some positive movement in the housing markets. One of the things reflected in the numbers is a more conservative approach in terms to what Fannie's willing to take on, and much more rigor in the underwriting standards Fannie and Freddie impose on the lenders they purchase loans from.

The regulatory response to the financial crisis has produced some positive benefits. We have to be careful not to overstate it, but there is a balance between effective regulation and over regulation.

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-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.