Freddie Mac earned $676 million in the January-March quarter, the first time the bailed-out mortgage giant has reported a quarterly gain in nearly two years.
The government-controlled company requested no additional federal aid Wednesday after receiving $13 billion over the past four quarters.
CEO Charles Haldeman attributed the net income to cost savings and fewer single-family homeowners who have fallen behind on their mortgages. Tighter lending requirements have also helped increase the quality of Freddie's new loans.
Still, Freddie has lost $25.3 billion in the previous six quarters, and analysts don't expect the company to report sustained earnings this year.
Despite its net earnings, Freddie Mac reported a 29-cents-a-share loss attributable to common stockholders. That's because the company takes into account $1.6 billion in dividend payments to the government, its primary shareholder.
The government rescued McLean, Va.-based Freddie Mac and its sibling company Fannie Mae from the brink of failure in September 2008. The government estimates the bailouts will cost taxpayers up to $259 billion.
"It's better than losses. But it's insufficient to dig their way out of the hole with Treasury," said Anthony Sanders, a professor of real estate finance at George Mason University in Fairfax, Va. "It could have been worse, but their best effort is not good enough."
Like Fannie, Freddie is so deep in debt to the government that they'd need "half a century" of profits to make it whole, Sanders said.
Haldeman said the net income shows improvement but acknowledged that the company faces enormous challenges. Millions of potential foreclosures are stalled in backlogged courts or delayed by federal regulators.
"Large inventories of unsold homes and a high number of distressed sales will continue to put downward pressure on home prices in many neighborhoods," Haldeman said in a statement.
Still, Freddie Mac is "moving in the right direction, at least in the way people have expected," said Mahesh Swaminathan, a strategist at Credit Suisse.
Fannie and Freddie own or guarantee about half of all mortgages in the United States. That adds up to nearly 31 million home loans worth more than $5 trillion. Along with other federal agencies, they backed nearly 90 percent of new mortgages over the past year.
Fannie and Freddie buy home loans from banks and other lenders. Then they package them into bonds with a guarantee against default and sell them to investors around the world.
During the housing boom, the two mortgage giants backed many loans that had been approved without proof of the borrowers' income or assets. That reversed years in which they backed only the safest loans — 30-year fixed-rate mortgages with 20 percent or higher down payments.
And while Fannie and Freddie didn't make subprime loans, they did buy securities tied to those risky mortgages. The companies had said they felt pressure to compete against Wall Street firms that were backing extremely risky loans.
The roughly $154 billion spent by taxpayers to bail out Fannie and Freddie is the most expensive rescue of the financial crisis. It is more costly than the savings and loan crisis of the early 1990s, which took six years and $125 billion to resolve.
By comparison, the Obama administration's bailout of the U.S. auto industry is expected to cost $17 billion.
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AP Business Writer Marcy Gordon contributed to this report.