Economy Watch: Strong Q1 for Fannie Mae

By Dees Stribling, Contributing Editor

On Thursday, a day after Freddie Mac reported sizeable income in the first quarter, the considerably larger GSE Fannie Mae reported income of $8.1 billion for the first quarter of 2013, compared with income of $2.7 billion in the first quarter of 2012 and income of $7.6 billion in the fourth quarter of 2012. The company’s income in 1Q13 was the largest quarterly total in its history, marking a recovery from the money-losing quarters of the recession.

According to Fannie Mae, the recent improvement was due primarily to the recovery of the U.S. housing market. Positive drivers for its income include higher average sales prices on Fannie Mae-owned properties, a decline in the number of delinquent loans, and the company’s resolution agreement with Bank of America.

Under the conservatorship imposed on the company in 2008, Fannie Mae has been able to draw funds from the U.S. Treasury, but also has to pay dividends to the Treasury when possible. The latest good quarter, along with the increasing value of its assets, will enable the GSE to pay the government nearly $60 billion, a large enough number such that estimates of when the federal debt ceiling will be reached have been pushed back to October from mid-summer. So far Fannie Mae has requested a cumulative draws totaling $116.1 billion, and through the first quarter of 2013 has paid the government $35.6 billion in dividends.

Student debt may impede growth

The Consumer Financial Protection Bureau warned in a report released on Thursday that high levels of student debt poses “potential domino effects” on the health of the U.S. economy. Aggregate student debt is already pretty high, with about $1 trillion currently outstanding, with members of the Class of 2011 averaging more than $26,000 in debt. Moreover, student loan borrowing is continuing to increase.

“College can open up many opportunities, and we do not want that college degree to become more of a burden than a blessing for those saddled with unmanageable debt in a tough employment market,” CFPB director Richard Cordray noted in a press statement. “So we are concerned that unmanageable student loan debt may be harmful to recovering consumer markets and may be dragging down borrowers’ lives.”

Dragging down borrowers’ lives, and thus the economy in some specific ways, according to the report, such as reducing homeownership, small business development and retirement savings, all of which require funding that student debt tends to leach away.

Unemployment claims to pre-recession levels

The Bureau of Labor Statistics reported on Thursday that for the week ending May 4, initial unemployment claims were 323,000, a decrease of 4,000 from the previous week’s revised figure of 327,000. Though the weekly figure is known to be jumpy, it’s also the case that that’s the lowest level since before the Great Recession.

The less jumpy four-week moving average was 336,750, a decrease of 6,250 from the previous week’s revised average of 343,000. The four-week average has been also dropping in recent weeks, and is now roughly at mid-2000s (and pre-recessionary) levels.

Wall Street dropped on Thursday to end a run of positive days, with the Dow Jones Industrial Average losing 22.5 points, or 0.15 percent. The S&P 500 was down 0.37 percent and the Nasdaq was off 0.12 percent.