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By Margaret Chadbourn

WASHINGTON, Nov 7 (Reuters) - Government-run Fannie Mae

FNMA.OB , the largest provider of U.S. residential mortgage funding, will pay the U.S. Treasury $8.6 billion after reporting a seventh consecutive quarterly profit on continued recovery in the real-estate market.

The company posted net income of $8.7 billion for three-month period that ended Sept. 30. That compares with a profit of $1.8 billion in the third quarter one year ago.

Since being seized by the government in 2008 as mortgage losses mounted, Fannie Mae and its smaller sibling, Freddie Mac

FMCC.OB , have drawn $187.5 billion in taxpayer aid from the U.S. Treasury.

When Fannie Mae makes its latest dividend payment in December, it will have returned $113.9 billion of the $116.1 billion in aid it has drawn. However, under the terms of its bailout, it cannot pay down the principal the government has pumped in.

Fannie Mae had been hobbled by a four-year housing slump that sent home prices plummeting and led to record foreclosures.

But it is now seeing a surge in profits as the sector rebounds. Its results have also been helped by an increase in the fees it charges to guarantee loans.

Together with the Federal Housing Administration, Fannie Mae and Freddie Mac fund roughly 90 percent of all new U.S. mortgages. Since the U.S. housing bubble burst, private investors have been wary of providing mortgage financing without a government backstop.

Both Republicans and Democrats agree that the government's support for housing needs to be reduced, and lawmakers are working on legislation to create a new model for the U.S. housing finance system - a goal the Obama administration supports.

(Reporting by Margaret Chadbourn; Editing by Chizu Nomiyama)

((margaret.chadbourn@thomsonreuters.com)(+1 202 354 5806)(Reuters Messaging: margaret.chadbourn.thomsonreuters.com@reuters.net))

Keywords: USA HOUSING/FANNIEMAE