The government-sponsored enterprises (GSEs [1]) bounced back from their first-quarter performance, recording increases in their respective comprehensive and net income levels in their newly released earnings reports.
Fannie Mae [2] posted a net income of $2.5 billion for the second quarter, up from $461 million in the previous quarter but lower than the $3.4 billion from one year earlier. It also reported $2.5 billion in comprehensive income for the second quarter, significantly higher from the $476 million for the first quarter but below the $3.3 billion in Q2 2019.
In its quarterly report [3], Fannie Mae acknowledged that its “credit-related expense in the first quarter of 2020 was driven by a substantial increase in its allowance for loan losses due to the economic dislocation caused by the COVID-19 [4] pandemic. The allowance for loan losses remained relatively flat in the second quarter of 2020.” The GSE did not enter into credit risk transfer transactions in the second quarter, citing the pandemic’s impact on the economy.
Fannie Mae noted that 5.7% of its single-family guaranty book of business based on loan count and 1.2% of its multifamily guaranty book of business based on unpaid principal balance were in forbearance, with the vast majority of these conditions being attributed to the COVID-19 pandemic. The GSE added that the pandemic will result in a lower net income for this year compared to last year, but it is still pressing ahead—Fannie Mae provided $542 billion in single-family liquidity and $34 billion in multifamily financing in the first half of this year.
“During this time of economic uncertainty, Fannie Mae is a force for stability, affordability, and liquidity in the housing markets,” said CEO Hugh R. Frater. “In the second quarter, we helped hundreds of thousands of homeowners and renters get the guidance and support they needed to stay in their homes, while we delivered on record refinancing demand. Fannie Mae will continue to work with partners across the industry to fulfill our mission and our leadership role in housing finance.”
Separately, Freddie Mac [5] announced $1.7 billion in second quarter net income, up from $173 million in the previous quarter and up from $1.5 billion in the second quarter of 2019. It also reported [6] $1.9 billion in comprehensive income, up from the first quarter’s $622 million and higher than the $1.8 billion from one year earlier.
During the second quarter, Freddie Mac reported $232 billion in new single-family business activity, its’ highest level since 2003, along with $20 billion in multifamily business activity. The GSE’s single-family and multifamily guarantee portfolios grew 7% and 13%, respectively, on a year-over-year measurement.
However, also on the rise was Freddie Mac’s serious delinquency rate for single-family home loans: 2.48%, up from 0.60% in the prior quarter, primarily fueled by an increase in loans in forbearance due to the pandemic. The share of second quarter loans in forbearance were 3.8% for the single-family portfolio and 2.4% for the multifamily mortgage portfolio, respectively.
“We earned a solid $1.9 billion of comprehensive income while expanding our efforts to support homeowners, renters, multifamily borrowers and lenders affected by the pandemic,” said CEO David M. Brickman. “During the period, we reached a key milestone toward exiting conservatorship by hiring a top-tier financial advisor to provide strategic counsel.”