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Fannie Mae: Money-Making Winner

NEW YORK (TheStreet) -- Fannie Mae (FNMA) was the big winner among major U.S. financial names on Tuesday, with shares rising 13% to close at 90 cents.

The government sponsored mortgage giant on Tuesday reported record earnings for the fourth quarter and for all of 2012.

Fannie Mae and its sister company Freddie Mac (FMCC) were taken under government conservatorship in September 2008, as both companies were in danger of becoming insolvent, with mortgage losses mounting. Fannie's shares popped on March 19 and remained volatile for the rest of that week, after the company announced it had delayed its annual 10-K filing with the Securities and Exchange Commission.

Freddie Mac's shares rose 14% on Tuesday, closing at 87 cents.

While delayed filings often cause shares to take a pounding, Fannie Mae's filing was delayed because Fannie was considering whether or not it could recapture some or all of its $58.9 billion valuation allowance for deferred tax assets, as of Dec. 31. That would go a long way toward repurchasing government-held preferred shares in the company, which were valued at $117.1 billion, as of Dec. 31.

Fannie wound up not recapturing any of the DTA, while reporting net income of $7.6 billion for the fourth quarter and $17.2 billion for all of 2012. Fannie also said it had paid the government $35.6 billion in dividends so far, and expected "to remain profitable for the foreseeable future."

Fannie Mae said its $10.3 billion mortgage putback settlement with Bank of America "led to the recognition of $1.3 billion in pre-tax income for 2012." Looking ahead, the company said it expected to book additional income from the settlement, and that its mortgage repurchase claims against other companies would decline substantially in the first quarter since "outstanding repurchase requests to Bank of America represented 73 percent of Fannie Mae's total repurchase requests outstanding as of December 31, 2012."

When discussing the timing of DTA recapture, Fannie said "the company believes that, after considering all relevant factors, it may release the valuation allowance on its deferred tax assets as early as the first quarter of 2013."

"Accordingly, Fannie Mae expects to pay Treasury a significant dividend in the quarter following a release of the valuation allowance on the company's deferred tax assets," the company said.

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