Not to be Outdone; Fannie Profits Bring Dividend Total to $136.4 Billion

Like Freddie Mac, Fannie Mae hasrnalso reported a profitable fourth quarter of 2014 and a profitable year.  The company had both net and comprehensive incomernfor the quarter of $1.3 billion and for the year a net of $14.2 billion and comprehensivernincome of $14.7 billion.</p

Comparing the year’s total resultsrnwith those of 2013 was, as with Freddie Mac’s revenues, virtually meaninglessrnas a large portion of the 2013 net of $84 billion and comprehensive income of $84.8rnbillion resulted from a one-time release of the company’s valuation allowance against its deferred tax assets. </p

Fannie Mae paid a totalrnof $20.6 billion in dividends to Treasury in 2014 and expects to pay an additional $1.9 billion in Marchrn2015, fringing the company has paid to $136.4 billion.  Dividends do not reduce prior Treasury draws,rnwhich total $116.1 billion since 2008.</p

Fannie Mae said its 2014 results were driven by strong revenues from net interest income, income from settlementrnagreements related to private-label mortgage-related securities, and credit-related income duernprimarily to increasing home prices during the year.rnThese were partially offset by a provision for federal income taxes andrnfair value losses on risk management derivatives due to declines inrnlonger-term interest rates in 2014.  The company will pay $6.9 billion in federalrnincome taxes for the year, an effective tax rate of 32.8 percent.</p

Fannie Mae’s net income of $1.3 billion and comprehensive income of $1.3rnbillion for the fourth quarter of 2014 compares to net income of $3.9rnbillion and comprehensive income of $4.0 billion for the third quarter of 2014. Fourthrnquarter results were driven by net interest income, partially offset by fair value losses on risk managementrnderivatives due to declines in longer-term interest rates in the quarter.rn</p

Timothy J. Mayopoulos, FanniernMae’s president and chief executive officer said, “Fannie Mae had anotherrnstrong year of financial performance. We continuedrnto manage our business effectively,rnput the legacy issues from the financial crisis behind us, and implementrninnovations to lead the industry toward a sustainable housingrnfinance system for today and the future.  We arerncommitted to serving our partners and focused on reducing barriers to lending tornqualified borrowers.”</p

Net revenues consisting of netrninterest income and fee and other income, were $5.5 billion for the fourthrnquarter of 2014, compared with $6.0 billion for the third quarter of 2014. Forrnthe year, net revenues were $25.9rnbillion, compared with $26.3 billion in 2013.</p

Net interest income, whichrnincludes guaranty fee revenue, was $5.1 billion for the fourth quarter of 2014, compared with $5.2 billion for thernthird quarter of 2014. For the year, net interest income was $20.0 billion for 2014, compared withrn$22.4 billion for 2013. The decrease in net interest income compared to 2013rnwas due primarily to lower interest income from retained mortgage portfoliornassets as the size of that portfolio has declined.  This has been partially offset by an increasernin net interest income from guaranty fees.</p

Fannie Mae said it expects itrnwill continue to see an increasing portion of net interest income coming fromrnguaranty fees as a result of both the shrinking portfolio and fee increases. rnThe guaranty fee percentage of income from loans underlying Fannie Mae MBS increased to approximately halfrnin 2014, compared with more than one-third in 2013.</p

Fee and other income was $323rnmillion for the fourth quarter of 2014, compared with $826 million the previousrnquarter.  The decrease was due to thirdrnquarter income from settlement agreements related to private-label mortgage-relatedrnsecurities sold to Fannie Mae. For the year,rnfee and other income was $5.9 billion for 2014, compared withrn$3.9 billion for 2013. The increase for the year was again due to private-labelrnsettlement agreements.  </p

Credit-related income, whichrnconsists of a benefit for credit losses and foreclosed property expense or income, was $97 million in the fourthrnquarter of 2014, compared with $836 million in the third quarter of 2014.  For the year, credit-related income was $3.8 billion, comparedrnwith $11.8 billion in 2013.  Both the quarterly and annual decreases were attributedrnto a slowing in home price growth.  Inrnaddition, 2013 benefited from foreclosed property income primarily due to thernrecognition of income related to compensatory fee agreements.</p

Net fair value losses were $2.5rnbillion in the fourth quarter compared to $207 million in the third and $4.8rnbillion for the year, down from a gain of $3.0 billion in 2013. The companyrnrecorded fair value losses during the quarter and year of due primarilyrnto declines in longer-term interest rates negatively impacting the value of therncompany’s risk management derivatives. </p

The company’s Single-Family businessrnsegment had net income of $1.6 billion in the fourth quarter of 2014, comparedrnwith $2.1 billion in the thirdrnquarter of 2014 due to lower credit-related income. For the year, thernnet income was $8.5 billion, compared with $48.3 billion in 2013. Therndecrease in annual net income was due primarily to the release of therncompany’s valuation allowance inrn2013, as well as a decrease in credit-related income, partially offset by an increasernin guaranty fee income.</p

Single-Family guaranty fee incomernwas $11.7 billion in 2014, compared with $10.5 billion in 2013. The Single-Family guaranty book of business was valuedrnat $2.85 trillion as of December 31, 2014 and September 30, 2014 and $2.89 trillion as ofrnDecember 31, 2013.</p

Single-Family credit-related income wasrn$94 million in the fourth quarter compared withrn$748 million in the third quarter.  For the year, Single-Family credit-related income wasrn$3.6 billion, compared with $11.2 billion in 2013. The decrease in annualrncredit-related income for both quarter and year was due primarily to slowerrnhome price appreciation in 2014 asrncompared with 2013.  In addition, 2013rnSingle-Family credit-related income benefitedrnfrom foreclosed property income due primarily to the recognition ofrnincome related to compensatory fee arrangements.</p

Multifamily net income was $373rnmillion in the fourth quarter of 2014, compared with $384 million the previous quarter. This drop was drivenrnprimarily by changes in credit-related income and the provision for federal income taxes, offset by an increase in gainsrnfrom sales of partnership investments. For the year, Multifamily netrnincome was $1.5 billion, compared with $10.1 billion in 2013. </p

Multifamily guaranty fee income was $337rnmillion for the fourth quarter of 2014, compared with $332 million for the third quarter of 2014. For the year,rnMultifamily guaranty fee income was $1.3rnbillion in 2014 compared with $1.2 billion in 2013.  The Multifamily guaranty book of business wasrn$203.3 billion as of December 31,rn2014, compared with $200.2 billion as of September 30, 2014 and $200.6 billionrnas of December 31, 2013.</p

Capital Markets net income was $448rnmillion in the fourth quarter of 2014, compared with $2.3 billion in the third quarter of 2014. The group had net incomernof $8.1 billion for the year, compared with $27.5 billion for 2013. The group’srnnetrninterest income was $1.7 billion for the quarter compared with $1.8 billion for the third quarter. Forrnthe year, Capital Markets net interest incomernwas $7.2 billion compared with $9.8 billion in 2013. Net investmentrngains were $1.9 billion for the quarter and $6.4 billion for the year. </p

Capital Markets retained mortgagernportfolio balance decreased to $413.3 billion as of December 31, 2014, compared with $490.7 billion as ofrnDecember 31, 2013, resulting from purchases of $178.3 billionrnand liquidations and sales of $255.7 billion during the year.</p

Fannie Maernsaid that 62 percent of its single-family portfolio consists of loans madernsince 2009 with another 11 percent made up of loans through the Home AffordablernRefinance Program (HARP.)  Only 19 percentrnof loans were originated prior to 2009.   </p

 The single-family serious delinquency rate for Fannie Mae’s book of business has declinedrnfor 19 consecutive quartersrnsince the first quarter of 2010, and was 1.89 percent as years end comparedrnwith 5.47 percent as of March 31, 2010. The pace of this decline has slowed inrnrecent months and the company expects this trend to continue.  The serious delinquency rate and the period ofrntime that loans remain seriously delinquent continue to be negatively impactedrnby the length of time required to complete a foreclosure in some states. </p

Fannie Mae providedrnapproximately $434 billion in liquidity to the mortgage market in 2014, includingrnapproximately $128 billion in the fourth quarter, through its purchasesrnand guarantees of loans.  This resulted in:</p<ul<li887,000rnhome purchases in 2014, 243,000 in the fourth quarter.</li<li937,000 mortgage refinancings for the yearrnand 264,000 in the fourth quarter. </li<li446,000 units of multifamily housing inrn2014, 157,000 of these in the fourthrnquarter.</li</ul

The company remained the largestrnsingle issuer of single-family mortgage-related securities in the secondaryrnmarket in the fourth quarter with an estimated market share of new single-family mortgage-related issuances of 40 percent forrnthe quarter and year. The company, as of September 30, 2014, also owned or guaranteed approximately 19 percent of the outstanding debt on multifamily properties.

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