Both Fannie Mae [1] and Freddie Mac [2] have issued their earnings report for Q1 of 2023, with both GSEs showing quarter-over-quarter gains amid a volatile housing marketplace.
Fannie Mae reported $3.8 billion in net income for Q1 of 2023, with net worth reaching $64 billion as of March 31, 2023. Fannie Mae reported its net income increased $2.3 billion in Q1 compared to Q4 of 2022, driven by a $3.2 billion decrease in provision for credit losses.
“We delivered strong first quarter results in a volatile market and remain committed to being a source of stability for the housing finance system throughout all economic cycles,” said Priscilla Almodovar, CEO of Fannie Mae [3]. “We are able to do so because of the changes we've made to improve the resilience of our business, our focus on risk management, and strong liquidity. This allows us to continue to facilitate affordable, equitable, and sustainable access to homeownership and rental housing.”
Freddie Mac reported a net income of $2 billion in Q1 of 2023, yet a 47% year-over-year drop in the quarter, primarily driven by lower net revenues and a credit reserve build in the current period. Net revenues were $4.8 billion, down 17% year-over-year, as higher net interest income was offset by a decline in non-interest income. Net interest income was $4.5 billion, up 10% year-over-year, primarily driven by mortgage portfolio growth, higher average portfolio guarantee fee rates, and higher investments net interest income due to higher interest rates. These increases were partially offset by a decline in deferred fee income due to slower prepayments as a result of higher mortgage interest rates. Non-interest income was $0.3 billion, down 81% year-over-year, primarily driven by a decline in net investment gains in Single-Family from elevated levels in the prior year period.
Freddie Mac’s provision for credit losses was $395 million for Q1 of 2023, driven by modest credit reserve builds in both business segments, compared to a benefit of $837 million for the prior year quarter, which was primarily the result of a credit reserve release due to higher estimated house prices, and an improvement in forecast economic conditions.
“We had a solid quarter, earning $2 billion with no significant impact to our earnings or balance sheet from the recent banking industry disruption,” said Michael DeVito, Freddie Mac CEO [4] during the GSEs’ earnings call. “Our earnings enabled us to transfer more than $250 million to Housing and Urban Development’s Housing Trust Fund [5] and Treasury’s Capital Magnet Fund [6], to benefit lower-income borrowers and renters. Solid earnings also increased our net worth by more than $2 billion to $39.1 billion. Our performance during the quarter was partly the result of steps we’ve taken these past 15 years to focus on the safety and soundness of our enterprise, particularly with respect to credit risk. That’s enabled us to serve our mission and be a stabilizing force during the recent banking crisis and the pandemic before that. It’s also enabled us to be there for families when natural disasters struck across the country.”
Fannie Mae also reported $78 billion in liquidity that was provided to the mortgage market in Q1 of 2023, and the acquisition of approximately 170,000 single-family purchase loans, of which more than 45% were for first-time homebuyers, and approximately 45,000 single-family refinance loans during Q1 of 2023. The GSE also financed approximately 91,000 units of multifamily rental housing in Q1, a significant majority of which were affordable to households earning at or below 120% of area median income (AMI), providing support for both workforce and affordable housing.
Freddie Mac’s total mortgage portfolio at the close of Q1 was $3.4 trillion, a 4% increase year-over-year. New business activity by Freddie Mac reported was $59 billion, down 72% year-over-year, as both home purchase activity and refinance activity slowed due to higher mortgage interest rates. The GSE reported that it completed approximately 24,000 loan workouts in Q1, and 62% of its mortgage portfolio was covered by credit enhancements.