Fannie Mae's Record Earnings up the Ante For Taxpayers, by $52.4 Bln

by devteam May 10th, 2013 | Share

FanniernMae reported today that it had pre-tax income of $8.1 billion in the firstrnquarter of 2013, the largest quarterly results in the company’s history.  In the fourth quarter of 2012 the companyrnreported pre-tax income of $7.57 billion.  Based on its net worth at the end of the first quarter of $62.4 billion the company’s dividend obligation to the U.S. Treasury will be $59.4 billion, a staggering $52.4 billion more than the analogous dividend reported by Freddie Mac Yesterday.</p

Payment of that dividend during the quarter will bring the total dividends to Treasury since Fannie Mae entered conservatorship in September 2008 to $95.0 billion.  The company has drawn $116.1 billion in support through draws on the Treasury during but will not request a draw based on its Q1 results.   Dividend payments from Fannie Mae do not lower its obligations to the Treasury which still maintains a liquidation preference of $117.1 billion on the company’s senior preferred stock.</p


Based on analysis of all relevantrnfactors, Fannie Mae determined that the releasernof the valuation allowance on itsrndeferred tax assets was appropriate under generally acceptedrnaccounting principles.  This resulted in a benefitrnfor federal incomerntaxes of $50.6 billionrnand in net income of $58.7 billion compared to $7.6 billion in the fourthrnquarter of 2012 and $2.7 billion in the first quarter of 2012.  Comprehensive income was $59.3 billionrncompared to $3.1 billion in the first quarter of 2012.</p

Therncompany attributed the improved results to strong credit results driven by anrnincrease in home prices including higher sales prices for owned real estatern(REO).  Also credited were a decline inrnthe number of delinquent loans and the company’s resolution agreement with Bankrnof America.</p

Netrninterest income in the first quarter was $6.30 billion, up from $5.56 billionrnin Q4 and $5.2 billion a year earlier. Total credit-related income was 1.22rnbillion compared to $2.37 billion the previous quarter and ($2.85) billion inrncredit expenses a year earlier.</p

Thernresolution agreement with Bank of America was related to repurchase requests</strongand led to the recognition of approximately $800 million in pre-tax income forrnthe first quarter of 2013.  Fannie Maernexpects to recognize pre-tax income in future periods relating to a separaternresolution agreement with the Bank on compensatory fees.</p

Fannie Mae remained the largest single issuerrnof single-family mortgage-related securities in the secondary market in the first quarterrnof 2013, with an estimated market share of new single-family mortgage-related securities issuances of 48 percent, comparedrnwith 48 percentrnin the fourth quarter of 2012rnand 51 percent in the first quarterrnof 2012.</p


Duringrnthe first quarter Fannie Mae acquired approximately 330,000 loans includingrnthose financed through the Home Affordable Refinance Program (HARP).  Even though some borrowers payments increasedrnwhen they took advantage of incentives to choose shorter loan terms, refinancedrnloans delivered to the company during the period reduced borrower monthlyrnpayments by an average of $256.</p


FanniernMae alsoremainedrna constant sourcernof liquidity in the multifamily market. As of December 31, 2012rn(the latest date for which information is available), the company owned or guaranteed approximately 22 percent of the total outstanding debt on multifamily properties. </p

As of March 31, 2013, 69 percent of Fannie Mae’s single-family guaranty book of businessrnconsisted of loans purchased or guaranteed since the beginning of 2009.  These loans have substantially higher creditrnscores, and lower debt-to-income ratios and FanniernMae expects that they will, in the aggregate, be profitable over their lifetime.  These stronger loans, along with Fannie Mae’srnhome retention solutions, foreclosure alternatives, and completed foreclosuresrnhave contributed to a steadily declining serious delinquency rate each quarterrnsince the first quarter of 2010.  Thernrate was 3.02 as of March 31, 2013 compared with 5.47 percent as of March 31,rn2010.  </p


Fannie Maerncompleted more than 43,000 loan modifications during the first quarter,rnbringing the total to approximately 922,000 since the beginning of 2009.  Other foreclosure avoidance solutions such asrnshort sales have brought the total of homeowners assisted during that period torn1.3 million.</p

Fannie Mae acquired 38,717rnsingle-family REO properties, primarily through foreclosure, in the first quarter of 2013, comparedrnwith 41,112 in the fourth quarterrnof 2012. As of Marchrn31, 2013, the company’s inventory of single-family REO properties was 101,449, comparedrnwith 105,666 as ofrnDecember 31, 2012. The carrying value of the company’s single-family REO was $9.3 billion as ofrnMarch 31, 2013.</p

Financial resultsrnfor each of Fannie Mae’s three reporting segments were are follows (Increasedrnnet income was in all cases due in part to thernrelease of the company’s valuation allowance against its deferred taxrnassets):.  :</p<ul class="unIndentedList"

  • Single-Family: Net income of $34.9 billion in the firstrnquarter compared to $4.0 billion in the fourth quarterrnof 2012. Pre-tax income was $3.3 billion, down from $4.0rnbillion the previous quarter due primarily to lower credit-related income. ThernSingle-Family guaranty book of business was $2.84 trillionrnas of March 31, 2013, compared with $2.83 trillionrnas of December 31, 2012. Single-Family guarantyrnfee income was $2.4 billionrnin the first quarter of 2013 and $2.3rnbillion in the fourth quarterrnof 2012.</li
  • Multifamily had net income of $8.5 billion in the first quarter of 2013, comparedrnwith $447 millionrnin the fourth quarterrnof 2012. Pre-tax income was $511 million,rncompared with $447 million in the fourth quarter of 2012, primarilyrndue to improvement in credit-related income. The Multifamily guaranty book of businessrnwas $205.4 billionrnas of March 31, 2013, comparedrnwith $206.2 billionrnas of December 31, 2012. Multifamily recordedrncredit-related income of $183 millionrnin the first quarter of 2013,rncompared with credit-related expense of $54 million in the fourthrnquarter of 2012. Multifamilyrnguaranty fee income was $291 million for the first quarter of 2013 and $280 millionrnfor the fourthrnquarter of 2012.</li
  • CapitalrnMarkets group had net income of $15.9 billion in the firstrnquarter of 2013, compared with $4.3rnbillion in the fourth quarterrnof 2012. Capital Markets had pre-tax incomernof $4.9 billion,rncompared with $4.3 billion in thernfourth quarter of 2012. The increase in pre-tax income in the first quarterrnof 2013 compared with the fourth quarter of 2012 was due primarily to an increasernin fair value gains. CapitalrnMarkets’ net interest income for the firstrnquarter of 2013 was $2.7 billion, comparedrnwith $3.0 billionrnfor the fourth quarter of 2012.rnFair value gains for the first quarterrnof 2013 were $875 million,rncompared with $211 millionrnin the fourth quarterrnof 2012. The Capital Marketsrnretained mortgage portfolio balance decreased to $597.8rnbillion as of March 31, 2013, comparedrnwith $633.1 billionrnas of December 31, 2012, resulting from purchases of $81.7 billion, liquidations of $41.8 billion, and sales of $75.2 billionrnduring the quarter.</li

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  • About the Author


    Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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