Fannie Mae reported $2.8 billion both net and comprehensive income for the quarter, the exact amount of the dividend amount it expect to pay the Treasury Department in June. But that income for the quarter was nearly half what the GSE reported in Q4 of 2016.
In January, Fannie reported $5 billion in Q4 net income. The GSE attributed the decrease to significantly smaller increases in interest rates in the first quarter of 2017 as compared those in Q4.
“Large increases in longer-term interest rates in the fourth quarter of 2016 resulted in substantial fair value gains on the company’s risk management derivatives for the quarter as well as credit-related expenses that partially offset these gains,” the report stated. “By contrast, interest rates increased only slightly in the first quarter of 2017, and therefore did not have a substantial impact on the fair value of the company’s risk management derivatives or its credit-related income for the quarter.”
Net interest income for the quarter was $5.3 billion, compared with $5.8 billion for the fourth quarter of 2016. Fannie attributed the drop to lower amortization income from mortgage prepayments as a result of “lower refinance activity and lower interest income due to a decline in the average balance of the company’s retained mortgage portfolio as the company continued to reduce this portfolio.”
Net revenues‒‒net interest income and fee and other income‒‒were $5.6 billion in Q1, compared with $6.2 billion in Q4 of 2016. Tat net income came primarily from the guaranty fees Fannie receives for managing the credit risk on loans underlying MBSs held by third parties and the difference between interest income earned on the assets in its retained mortgage portfolio and the interest expense associated with the debt that funds those assets.
Once June’s $2.8 billion dividend is paid, Fannie will have paid a total of $162.7 billion in dividends to Treasury.
Despite the near-halving of net income, Fannie Mae president and CEO Timothy Mayopoulos said in a statement that things aren’t as bad as they appear in the Q1 report.
“Both the market and our operations continued to strengthen, and our progress was reflected in another profitable quarter,” Mayopoulos said. “We look forward to advancing our vision to create a digital mortgage process, and make new strides in our efforts to encourage the creation of affordable multifamily housing.”