Fannie Mae generates net income of $4.7 billion in the second quarter


Like its sister company, Freddie, Fannie Mae remained profitable in the second quarter despite pressure from inflation, rising interest rates and deteriorating affordability, according to results released Friday.

Government-backed mortgage giant Fannie Mae made $4.7 billion in profits in the second quarter of 2022, despite the negative impact of rising interest rates on its single-family portfolio and deteriorating accessibility in the multi-family space.

Fannie Mae also increased its quarterly net interest income from $7.4 billion to $7.8 billion, primarily due to higher income from its retained mortgage portfolio.

David Benson | Credit: Fannie Mae

“While our mortgage acquisitions continue to slow due to the sharp decline in refinancing volume, we continue to deliver on our liquidity mission for the mortgage market,” said David Benson, interim president and CEO. said in an earnings call on Friday. “Our strong second quarter results reinforce our financial strength, and we remain focused on both risk management and our mission to provide sustainable and affordable financing for the benefit of tenants and landlords.”

From April to June, Fannie Mae financed 574,000 home purchase and single family refinance loans and 156,000 affordable rental units for households with incomes at or below 120% of median income in the region.

A sharp rise in 10-year Treasury bills (+67 basis points) and 30-year fixed-rate mortgage rates (+103 basis points), boosted Fannie Mae’s quarterly volume of conventional single-family acquisitions ( $173.2 billion) and refinancing volume ($61.3 billion). ) down 28% and 54%, respectively.

However, robust first-time buyer activity lifted the mortgage giant’s purchase volume to its highest quarterly level since the first quarter of 2019, rising 6.7% to $111 billion.

On the multifamily side, Fannie Mae’s acquisition volume skyrocketed from $2.7 billion in the first quarter to $18.7 billion in the second quarter as it focused on labor financing. labor and affordable housing.

“The credit profile of our multi-family business portfolio remains strong, with a weighted average original loan to value ratio of 65% and a weighted average debt service coverage ratio of 2.2 times the DQ rates of our multifamily declined to 34 basis points as of June 30, 2022,” Chief Financial Officer Chryssa Halley said of the guarantor’s multifamily portfolio.

Even though Fannie Mae posted strong results for the second quarter, Benson and Halley predicted increased headwinds for the remaining quarters of the year, with Benson predicting a recession by the first quarter of 2023. However, the two executives said the recession would be nothing like the Great Recession thanks to tighter lending standards.

“As we noted last quarter, we do not expect a downturn that matches the severity of 2008 in terms of impact on housing or our financial results, primarily due to better overall credit quality. , less leverage in the maturity of our loss mitigation practices,” Benson said.

In the second quarter, FICO scores for the Fannie Mae acquisition averaged 746, with serious delinquencies in its single-family portfolio rising from 101 basis points at the end of March to 81 basis points at the end of June.

While there won’t be a deluge of mortgage defaults and foreclosures like in 2007 and 2008, Halley said Fannie Mae has decided to revise down its outlook for third and fourth quarter mortgage rates. and inflation gouging consumers’ pockets.

Originations in Fannie Mae’s single-family mortgage market are expected to decline 43% annually to $2.5 trillion, with nearly 70% of activity expected to come from purchase originations. Meanwhile, continued supply chain and labor constraints are expected to lower multifamily market origins from $50 billion to $425 billion.

Finally, market headwinds are expected to compress Fannie Mae’s annual amortization income and net income as higher interest rates reduce demand for refinancing.

“Although Fannie Mae enters this period of uncertainty from a position of relative strength, we are fully aware that we are in a very unusual and potentially volatile global and economic environment,” Benson noted. “Therefore, we have to expect the unexpected.”

“We will continue to focus on managing our risks and fulfilling our mission to be a trusted source of affordable and sustainable financing,” he added. “And we remain committed to helping tenants and landlords gain access to housing solutions that meet their needs.”

Fannie Mae’s sister company, Freddie Mac, reported results Thursday with net income of $2 billion. Although Freddie remained profitable, the guarantor had a harder time maintaining its purchase and refinance volume, both of which saw double-digit declines in the second quarter.

“Our work has taken on greater complexity and importance in the current economic environment,” Freddie Mac CEO Michael DeVito said Thursday. “Rising mortgage rates, continued appreciation in home prices and a continuing lack of supply are slowing the housing market and testing the affordability of many families.”

If Fannie and Freddie remain profitable and continue to grow their net worth and capital reserves, they could be allowed to leave government conservatorship, although there is no consensus among lawmakers on exactly how to do so. do it.

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