(Reuters) - Fannie Mae’s net income fell in the second quarter from a year-ago due to losses on its derivatives, while it is expected to pay $3.4 billion in dividends to the U.S. Treasury, the No. 1 U.S. mortgage financing agency said on Thursday.

FILE PHOTO: Fannie Mae headquarters is seen in Washington, DC, U.S. on February 21, 2014. REUTERS/Kevin Lamarque/File Photo

The agency posted net income of $3.452 billion, compared with $4.457 billion a year ago.

Fannie Mae recorded a loss of $754 million on the fair value of its derivatives, compared with a $229 million gain in the same quarter of 2018.

The Washington-based company attributed the drop in derivative values on falling interest rates.

Bond yields and other market-based borrowing costs fell in the second quarter amid investor worries over weakening global growth due to trade tensions and bets the Federal Reserve would lower lending rates to counter risks from trade spats and sluggish domestic inflation.

In September 2008, the government took control of Fannie and Freddie Mac FMCC.PK in a $191.5 billion bailout during the global credit crisis after they were exposed to sour subprime mortgages. The two government-sponsored enterprises have handed over their profits to the U.S. Treasury under the terms of the conservatorship.

The two agencies make money by charging fees to guarantee home loans made by banks and other lenders. They also earn income from investing in mortgages and related securities.

Fannie Mae’s net revenues in the second quarter totaled $5.396 billion, down from $5.616 billion a year earlier.

Mark Calabria, director of the Federal Housing Finance Agency (FHFA) which regulates Fannie and Freddie, told Reuters last week he hoped the two GSEs would be ready to exit conservatorship within five years.

Analysts and the financial industry expected Calabria to begin replenishing Fannie and Freddie’s capital by ending the profit sweep to the Treasury and retaining their earnings.

But last week he told Reuters he wanted to make that change “holistically” as part of a broader renegotiation of the preferred stock agreement terms.