Fannie Mae reported net income of $4.7 billion for the second quarter of 2022, compared to $4.4 billion in the first quarter.
Net income increased by $200 million in first six months of the year compared to last year, driven by higher base guarantee fee income, an increase in the size of Fannie Mae’s guarantee portfolio and higher income from portfolios. As rising mortgage rates sap borrowers’ appetite for refinancing, fewer loans are leaving Fannie Mae’s business volume.
Fannie Mae’s net worth was $56.4 billion at the end of the second quarter, up from $51.8 billion at the end of the first quarter. The US Treasurywhich owns a majority stake in Fannie Mae, and the Federal Housing Finance Agencyits custodian, allowed the company to retain its profits from 2019.
During a conference call to announce the results, Fannie Mae’s interim CEO David Benson reiterated Fannie Mae’s prediction of a recession in early 2023.
“Although the FNMA enters this period of uncertainty from a position of relative strength, we are fully aware that we find ourselves in a very unusual and potentially volatile global and economic environment,” Benson said. “Therefore, we have to expect the unexpected.”
Fannie Mae’s strong position is, in large part, due to the fees it charges to assume mortgage borrower risk. These costs have increased significantly compared to the same period last year.
The average guarantee fee the company charged on single-family conventional loans it acquired in the second quarter of 2022 was 51.7 basis points, up 6.5 basis points from the same period l last year. This increase was due to the “lower overall credit risk profile” of the loans that Fannie Mae acquired in 2022, its quarterly filing with the Security and Exchange Commission shows, due to a higher share of purchase loans, which are generally riskier than refinances.
The share of refinances purchased by the company in the second quarter of 2022 fell to 36%, from 65% a year ago. Purchase loans have higher loan-to-value ratios, driving the share of GSE mortgages with loan-to-value ratios over 80% from 22% at the same time last year to 34% in the second quarter of 2022.
This combination of refinances and purchase acquisitions also impacted the debt-to-income ratio of loans purchased by Fannie Mae and the underlying credit rating. In Q2 2022, 22% of loans acquired by Fannie Mae had leverage ratios above 45%, compared to 14% of loans in Q2 2021. The share of loans purchased by GSE with a credit rating of or at above 740 fell to 61% in the second quarter of 2022, from 70% the previous year. The share of loans with credit scores below 680 fell to 9% from 6% at the same time last year.
The refinancing glut has dried up significantly, with mortgage rates rising rapidly, boosted by the Federal Reserve’s inflation-fighting measures. Of the $172 billion in single-family loans Fannie Mae purchased in Q2 2022, 36% were refinances. Just three months ago, 57% of loans acquired by Fannie Mae were refinances.
Fannie Mae’s average loan size for the second quarter of 2022 was $300,556, compared to $281,749 in the first quarter of 2021. The FHFA increased the base conforming loan limit to $647,200 last year, a 18% increase.
But the share of high-balance loans and secondary home loans that Fannie Mae acquired declined in the second quarter of 2022 compared to the previous quarter. That’s in light of the fees the FHFA imposed on these loans, after reaching an agreement with the US Treasury to temporarily suspend hard caps on them.
EDITOR’S NOTE: This story has been updated with the correct single-family purchase volume and refinance share for the second quarter.