Yesterday Freddie Mac announced net income of $676 million for the quarter ended March 31, 2011, compared to a net loss of $113 million for the quarter ended December 31, 2010. The company release states Freddie had a positive net worth of $1.2 billion on March 31, 2011. As a result, no additional funding from Treasury was required for the first quarter of 2011.

Up until now the notion that either GSE could be profitable in this housing market and canoe-shaped recovery seemed unimaginable to even the most informed and astute industry veterans. The likelihood was further hamstrung by required 10% dividend payments which must be paid by the GSEs to Treasury each quarter.

Then again, one has to remember that Fannie Mae and Freddie Mac can produce $35B+ a year in net interest margin alone, standing on their head...

Both firms now have substantial credit loss reserves thanks to Treasury infusions during conservatorship.  Both organizations are also working diligently at slashing their operational expenses through a combination of outsourcing, system enhancements, and cutbacks. From that perspective, with positive progress in motion,  the inevitable question becomes - "how loud will the cries from Capitol Hill be after the second or third quarter of profitability by these organizations?"

One thing I do know is that while it might take half a lifetime for the GSEs to pay the Treasury back in full on their current course - wound down institutions don't write checks at all.