Fannie Mae Reports on Activities in 2009, Changes Outlook for 2010

In two separate reports released this week, ""Fannie Mae"":http://www.fanniemae.com/ took a look at the past and made predictions for the future.

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On Thursday, the government-sponsored enterprise (GSE) released ""Helping Housing Recover: A Report on Fannie Mae's Mission Performance,"":http://www.fanniemae.com/media/pdf/2010/mission-performance-report.pdf describing the company's efforts to provide liquidity, stability, and affordability to the nation's housing finance system.

""Fannie Mae has been asked to play a significant role and received significant government assistance to support borrowers and the country's housing finance system during these difficult economic times,"" said Michael J. Williams, president and CEO. ""We take this duty very seriously, and this report chronicles our efforts to fulfill this critical mission.""

According to the report, Fannie Mae provided $823.6 billion in funding to help keep the single-family and multifamily mortgage markets operating during 2009. The GSE was responsible for more than 40 percent of the mortgage-related securities issuances, which made funds available for thousands of people to buy and refinance homes. In addition, Fannie Mae provided more than 40 percent of financing for rental housing last year.

Through these efforts, Fannie Mae provided mortgage funding for 3.1 million borrowers. This financing helped 2.5 million borrowers refinance their loans, and it assisted 600,000 borrowers buy homes during the tightest mortgage credit market in decades. The GSE's funding also aided in the purchase, refinance, or rehabilitation of 372,000 rental units. Additionally, more than 160,000 borrowers with Fannie Mae-owned loans were able to keep their homes through a loan modification or other loan assistance.

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""As of this report, glimmers of recovery have begun to appear in the housing market,"" the report's closing statement said. ""But most observers -- including Fannie Mae's economics team -- caution that the market has a long way to go before it reaches stability.""

This sentiment was echoed in Fannie Mae's ""March 2010 Economic Outlook"":http://www.fanniemae.com/media/pdf/2010/mission-performance-report.pdf, released Wednesday by the GSE's Economics & Mortgage Market Analysis Group. According to Fannie Mae, continued recovery in housing is the key to a durable economic recovery, but the surprising drop in both new and existing home sales in January has created a dimmer near-term outlook.

New homes sales fell for the third consecutive month in January to a level that surpassed the previous low recorded a year ago. Existing home sales dropped for the second consecutive month in January but remained nearly 12 percent above their record low. Fannie Mae said home sales will likely fall further in February, suggested by a sharp decline in the pending home sales index in January.

""While we had expected sales to pull back from an unsustainable pace in the fourth quarter, as homebuyers rushed to buy homes before the tax credit was tentatively set to expire, the drop in the current quarter will likely turn on to be larger than we had anticipated,"" the report said.

Due to lower projected home sales, Fannie Mae reduced purchase mortgage originations ""somewhat"" to $716 billion. The GSE also estimated that total mortgage originations will decline to $1.31 trillion in 2010, down from a projected $1.97 trillion in 2009, with a refinance share of 44 percent. In addition, Fannie Mae expects the decline of mortgage debt outstanding to accelerate to 2.6 percent, compared with an estimated drop of 1.7 percent in 2009.

It's not all bad news, though. As homebuyers rush to close sales before the June expiration of the extended and expanded tax credit, Fannie Mae expects home sales to rebound in the second quarter. In the third quarter, the GSE expects a ""payback,"" as the tax credit will likely pull some of the demand forward. And by the end of the year, if the labor market improves as expected, sales should start to trend up on a sustainable basis. For all of 2010, Fannie Mae projects total home sales will increase 9 percent, down from the 12 percent surge predicted in its previous forecast.