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Freddie Mac turns profit, not seeking taxpayer aid

By Lynn Adler

(Reuters) - Freddie Mac reported a third-quarter profit on Tuesday, driven by a U.S. housing market on the mend, and said it was not requesting additional funds from the U.S. Treasury to stay solvent.

The government's second-largest mortgage funding entity, which said its portfolio of late-paying loans was the lowest in two years, had sufficient income to make a $1.8 billion dividend payment to the Treasury.

Freddie Mac had net earnings of $2.9 billion in the quarter that ended September 30, contrasting a $4.4 billion loss a year earlier.

This is the first time Freddie Mac reported earnings since the U.S. Treasury said it would force Freddie, as well as larger government funding firm Fannie Mae , to more quickly shrink their mortgage investments and turn over profits to taxpayers.

Now, instead of having to pay a 10 percent dividend, for which they at times had to borrow just to make the payment, Freddie Mac and Fannie Mae will instead not be able to keep their profits.

The government seized both entities in 2008 after their massive mortgage losses threatened the financial system. Under the revised plan, the dividend payment on U.S. loans made to each entity, has risen to 15 percent.

Through September 30, Freddie Mac has paid $21.9 billion in cash dividends, or 31 percent of its total draws received from the Treasury.

Freddie Mac and Fannie Mae, central to the gradually mending housing market, buy mortgages from lenders and pool them for sale to investors, which in turns frees up additional funds for lenders to make more loans.

"Freddie Mac's strong financial performance this quarter was driven by favorable market conditions, including the continued improvement in the housing market, as well as our ongoing efforts to minimize losses on our legacy book," Chief Executive Donald H. Layton said in a statement.

Freddie Mac's holdings of late-paying mortgage loans is at the lowest level in two years, and higher quality loans represent 60 percent of the entity's portfolio, he said. (Reporting by Lynn Adler; Editing by James Dalgleish and Maureen Bavdek)

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