• Fannie Mae reports first-quarter net income of $2.7 billion.
  • Comprehensive income of $3.1 billion covered a $2.8 billion dividend to the U.S. Treasury.
  • No new government borrowings, which total $117.1 billion.

NEW YORK (

TheStreet

) -

Fannie Mae

(FNMA)

on Wednesday reported a first-quarter profit and said it would not need government assistance as credit quality improvements ended years of losses.

Fannie's shares were up 12% in early trading, to 29.5 cents.

The mortgage giant -- which, together with

Freddie Mac

(FMCC)

was taken under government conservatorship in September 2008 -- 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.

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," which, or course, an extremely significant development.

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 CEO Michael Williams said that "Our financial performance has improved significantly and we successfully limited losses on the legacy book of business through our efforts to help homeowners avoid foreclosure," adding that the company's "credit-related expenses have decreased substantially due in part to stabilizing home prices, lower delinquency rates, and selling foreclosed properties at market competitive prices."

CFO Susan McFarland said that "as our serious delinquency rate declines and home prices stabilize, we expect to reduce our reserves, which combined with revenue from our high-quality new book of business, will drive our future results."

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.

--

Written by Philip van Doorn in Jupiter, Fla.

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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.