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MCLEAN, VA-While there are growing signs that the economy and housing markets are hitting bottom–or at least ending the free fall it was in at the beginning of the year–the latest earnings from Freddie Mac do not fall into this category. On Friday the GSE reported–on the heels of dismal earnings from Fannie Mae–that it issued its first profit in two years, with a net income of $768 million for Q2, compared with a $9.9 billion net loss in the previous quarter.

As a result Freddie Mac would not have to draw down additional Treasury funds. Not surprisingly, shares of Freddie Mac were up 53 cents to $1.27 Monday morning–more than double its value from the week before.

However–and executives at Freddie Mac took pains to highlight this as well–the profit is due more to one-time events than any long term climb back to health. Namely, gains from the change to mark-to-market regulations, plus profits realized from derivatives, offset its losses. Credit losses registered $5.2 billion for the quarter, compared with $8.8 billion for Q1. In this case, the GSE is showing signs of health, ironically, with the slowdown in losses due to positive home price improvements.

Freddie Mac was able to recognize a gain of $4.2 billion on the derivative portfolio, thanks to mark-to-market changes, which allowed it to recognize shifts in long term interest rates. Essentially, Frederic Ruffy, senior options strategist at WhatsTrading.com tells GlobeSt.com, Freddie Mac’s profits in the second quarter were helped by one-time events that might not be repeated going forward. “Indeed, the company issued cautious guidance, stating, ‘Our outlook remains cautious due to rising foreclosures, growing unemployment, tight lending standards, and buyers’ reluctance to reenter the market,’” he notes.

The stock rise is part of larger rebounding, on the hopes that the worst is over for the troubled mortgage companies, Ruffy says. “Shares of both Fannie Mae and Freddie Mac rallied last week on reports the Obama administration was working on a plan that could help the two companies shed billions in bad debt.”

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