Fannie Mae Posts Q2 Profit; Won't Need Treasury Help

Fannie Mae joined Freddie Mac thisrnmorning in declaring an increased second quarter profit and announcing it wouldrnnot request a draw from the Department of the Treasury.  Instead, the government sponsored enterprisesrn(GSE) will pay a $2.9 billion dividend to the Department on the seniorrnpreferred stock it owns.</p

Fannie Mae reported income of $5.11rnbillion in the second quarter, nearly twice the $2.72 billion income reportedrnin the first quarter.  In the secondrnquarter of 2011 there was a loss of $2.99 billion.  The company has now reported $7.8 billion inrnnet income in thus far in fiscal 2012 compared to a loss of $9.4 billion at thernsame point in 2011.  Fannie Mae said the improvementrnin its financial results were nearly all due to credit-related income resultingrnprimarily from an improvement in house prices, improved sales prices on itsrnowned real estate (REO), and a decline in the serious single-family delinquencyrnrate.</p

At the end of the second quarter therncompany had net worth of $2.8 billion reflecting total comprehensive income ofrn$5.4 billion partially offset by the dividend payment to Treasury.  The total liquidation preference of thernDepartment’s senior preferred stock is $117.1 billion which requires anrnannualized dividend payment of $11.7 billion. rnSince the original infusion of money from the Treasury, Fannie Mae hasrnpaid $25.6 billion in cash dividends on the senior stock representing 22 percentrnof the amount borrowed from Treasury.</p

The company’s total loss reservesrndecreased to $68.0 billion as of the end of the quarter from $76.9 billion asrnof December 31, 2011.  The companyrnexpects the trends of stabilizing home prices and declining serious delinquencyrnrates will continue although rates are expected to decline at a slower raternthan in previous quarters.  The companyrnfeels that loss reserves peaked at $76.9 billion and will not increase abovernthat number in the foreseeable future.  Itrnalso projects lower credit-related expenses this year than last year.</p

The company’s single family seriousrndelinquency rate has declined each quarter since Q1 2010 and was at 3.53rnpercent at the end of June compared to 5.47 percent on March 31, 2010.  This decrease is the result of home retentionrnand foreclosure prevention programs, completed foreclosures, and the company’srnacquisition of loans with stronger credit profiles.  These more recent and higher credit qualityrnloans now represent 59 percent of the company’s single family guarantee book ofrnbusiness.</p

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To reduce the credit loses on the legacyrnportion of its book of business the company has been focusing on severalrnstrategies including loan modifications. rnIt completed more than 35,000 modifications during the second quarterrnand has completed more than 797,000 since the beginning of 2009.  During the second quarter the company alsorncompleted 24,013 short sale and deeds-in-lieu transactions and implementedrn5,894 repayment plans or forbearances.</p

Fannie Mae sharply increased the numberrnof loans it acquired under the Home Affordable Refinancing Program (HARP 2.0)rnduring the quarter.  These approximatelyrn128,000 HARP 2.0 loans constituted 15 percent of the single-family acquisitionsrnduring the quarter by unpaid principal balance compared to 10 percent in thernfirst quarter.  </p

If interest rates remain low Fannie Maernexpects that it will continue to acquire a high volume of HARP 2.0 loans, particularlyrnthose with loan-to-value (LTV) ratios over 125 percent.  HARP and Refi Plus loans representrnrefinancing of loans that are already in the company’s book of business andrnhence the credit risk of these new loans replaces the risk represented by thernold loans.  They have higher seriousrndelinquency rates and may not perform as well as the other loans acquired sincernthe beginning of 2009, however the company expects that, because of the lowerrnpayment and the fixed rate, they will perform better than the loans theyrnreplace.</p

The GSE acquired 43,783 single-familyrnREO properties in the second quarter compared to 47,700 in the first quarterrnand disposed of 48,674 properties compared to 52,071.   As of June 31 the total inventory of REO wasrn109,266 compared to 114,157 on March 31. rnThe carrying value of the REO was $9.4 billion.

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