The big news for Fannie Mae [1]’s fellow GSE,Freddie Mac [2], in its Q2 earnings report released earlier this week was that it didn’t take a loss for the second quarter. Fannie Mae’s profitability in Q2 was 37 percent less than the same quarter a year ago, but the GSE still reported a net income of $2.9 billion during the quarter (compared with $4.6 billion in Q2 2015) in its Q2 earnings report released Thursday [3].
Still, Fannie Mae’s net income in Q2 nearly tripled over-the-quarter from a $1.1 billion showing in Q1 this year, largely due to lower fair value losses driven by smaller decreases in longer-term interest rates; higher credit-related income attributable primarily to an increase in home prices and a decrease in actual and projected mortgage interest rates, as well as a decrease in foreclosed property expense; and higher net revenues driven primarily by an increase in mortgage prepayments.
Fannie Mae’s net worth as of June 30, 2016, was $4.1 billion; the GSE will return $2.9 billion to Treasury in September as part of the preferred purchase stock agreement, bringing the total dividend paid to Treasury up to $151.4 billion through the third quarter of this year. This amount is about $35 billion more than the $116 billion bailout Fannie Mae received from taxpayers in 2008, at which time along with Freddie Mac it was taken into conservatorship by the federal government.
“I’m pleased with the underlying fundamentals of our business including revenues and the credit quality of our book remained strong,” said Timothy J. Mayopoulos, president and CEO of Fannie Mae. “Because of these strong fundamentals, we expect to remain profitable on an annual basis for the foreseeable future. As we’ve said in the past, there are factors that we do not control such as changes in interest rates and home prices, and each factors can cause significant volatility in our financial results, and can have a positive or negative effect in any given quarter. Once again, we saw some of that volatility this past quarter. Decreases in longer term interest rates caused us to experience fair value losses on the derivatives that we use to manage risk from interest rate changes. These losses however, were left in the fair value losses we experienced in the first quarter.”
Despite the substantial over-the-year decline in net income, Fannie Mae’s Q2 earnings report focused on positives such as the amount of liquidity provided to the mortgage market and Fannie Mae provided approximately $145 billion in mortgage financing enabling families to buy, refinance, or rent homes. Also during Q2, Fannie Mae continued to lay off risk to private capital and reduce taxpayer risk through various credit risk transfer initiatives; through June 30, 2016, transferred a significant portion of the mortgage credit risk on more than $660 billion in unpaid principal balance of mortgage loans.
“We had another quarter of solid financial performance,” Mayopoulos said. “We are carrying through on actions to strengthen our company, support the housing market, and bring innovation to the market for the benefit of consumers, lenders, and taxpayers. We remain a steady, continuous source of mortgage financing to ensure broad access to quality rental housing and predictable long-term mortgages, including the 30-year fixed-rate mortgage.”
Click here [3] to view Fannie Mae’s Q2 2016 earnings report.
