Upcoming $10B in Q3 Earnings for GSE?

It seems like GSE will have a big infusion of net income in Q3 due to the settlement of RBS. Imagine if Mel Watt retains this big portion of earning, that will be great capital buffer for GSE.

From Inside Mortgage Finance:

Fannie, Freddie Earnings Could Hit $10 Billion in 3Q17 Thanks to RBS Settlement

Combined net earnings at Fannie Mae and Freddie Mac could hit the $10 billion mark in the third quarter thanks to a mostly strong mortgage market and a large legal settlement the Federal Housing Finance Agency struck in July with Royal Bank of Scotland.

Officials at both GSEs confirmed to IMFnews that the $5.5 billion settlement with RBS will show up as “other income” when the two report their results this fall.

If Fannie and Freddie continue to perform the way they have all year – and barring a sharp drop in rates, which could impact hedging results – there’s no reason to think they won’t earn another $4.9 billion or so in 3Q, a figure that does not include the RBS settlement. The two numbers together total $10.4 billion. (In 2Q17, the GSEs reported a combined profit of $4.9 billion.)

RBS agreed to the settlement in mid-July, too late for 2Q17 earnings. The agreement covers faulty subprime MBS RBS’s Greenwich Capital affiliate sold to the GSEs last decade. If the $10.4 billion figure proves accurate, it will result in another hefty dividend payment by Fannie and Freddie to the holder of its senior preferred stock: the U.S. Treasury. For an update on the GSE dividend situation, see the upcoming edition of Inside Mortgage Finance.

Also from FHFA web site.