The Washington Post reported (a few weeks ago) that Fannie Mae has made large profits that will go to the U.S. Treasury.

I expect these profits to continue, because the business model right now is excellent. The government is saying to mortgage originators:

1. Do not originate any loans that do not comply with our rules.

2. We cannot tell you what the rules are yet, because they are not final (it’s only been, what, 3 years since Dodd-Frank passed?)

3. But Freddie and Fannie have an exemption, so anything they will take you can originate and we won’t bother you.

Freddie and Fannie do not have to worry much about credit risk, because the housing market bottomed out a while ago, so we are unlikely to see another house price collapse.

Freddie and Fannie are borrowing at Treasury rates, so they enjoy a nice, juicy margin. And the Fed is still holding onto a lot of mortgage securities, which helps keep their prices up.

The one fly in the ointment is that Freddie and Fannie probably are exposing taxpayers to more interest-rate risk. That is, all those 4 percent mortgages that the government is holding on our behalf will not look so profitable if the Treasury’s cost of borrowing should go up to, say, 6 percent. That is already the worst possible scenario from a government solvency standpoint. In that sense, from a taxpayer point of view, Freddie and Fannie are risk-aggravating. Meanwhile, enjoy the windfall.

James Hamilton points out that another fly in the ointment is that a lot of Fannie’s profits are actually tax deductions that come at the expense of the Treasury.