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GSEs Report Decent, Not Stunning, Quarterly Results
Freddie Mac and Fannie Mae each reportedrnout another successful financial quarter today as each continued to reduce theirrnrespective distressed loan portfolios, replacing them with later vintagernperforming loans. Neither howeverrnreported profits at the record levels seen earlier as their portfolios shrinkrnand legal settlements taper off.</p
Fannie Mae reported net income and comprehensivernincome of $3.7 billion for the second quarter of 2014 while Freddie Mac’s net incomernwas $1.4 billion. Fannie Mae will payrn$3.7 billion in dividends to the U.S. Treasury in September and Freddie Macrnwill pay $1.9 billion. Neither of therntwo government sponsored enterprises (GSEs) will require a draw on their linesrnof credit with the Treasury Department.</p
Fannie Mae’s netrnincome was down from $5.3 billion in the first quarter and comprehensive incomernfrom $5.7 billion. The company posted net interestrnincome of $4.9 billion in the second quarter compared to $4.7 billion in thernfirst and net revenues of $5.3 billion compared to $9.1 billion. The decline in gross and net income was due<bprimarily to lower income from settlement agreements related to private-labelrnmortgage related securities sold to the company. The decline was partially offset by anrnincrease to the company’s benefit for credit losses due primarily to higherrnhome prices in the second quarter. </p
As a result of both the shrinkingrnof the retained mortgage portfolio and the impactrnof guaranty fee increases, an increasing portionrnof Fannie Mae’s revenues in recent years has been derived from guaranty fees rather than from interestrnincome earned on therncompany’s portfolio assets. The percentage of net interestrnincome derived from guaranty fees onrnloans underlying Fannie Mae MBS increased to approximately half in the first half of 2014,rncompared with approximately one-thirdrnin the first half of 2013. The company expectsrnthat guaranty fees will continue to accountrnfor an increasing portion of its revenues.</p
Net Fair Value Losses were $934 millionrnin the second quarterrnof 2014, compared with $1.2 billion in the first quarterrnof 2014. Secondrnquarter 2014 fair value lossesrnwere driven primarily by losses on risk management derivatives as a result of a decreasernin interest rates. </p
Fannie Mae’s federal incomerntax rate was 32.3 percent in the second quarterrnof 2014, resulting in a provision for federal incomerntaxes of $1.8 billion in the second quarterrnof 2014.</p
With the expectedrnSeptember dividendrnpayment, FanniernMae will have paid a total of $130.5 billion</bin dividends to Treasuryrnin comparison to $116.1 billion in draw requestsrnsince 2008. Dividend payments do not offsetrnprior Treasury draws.</p
FreddiernMac’s profitable quarter was the eleventh consecutive one in which it hasrnposted positive earnings. The secondrnquarter net of $1.4 billion was, however, substantially lower than the $4rnbillion net in the first quarter of 2014 and the comprehensive income of $1.9rnbillion was also down from $4.5 billion in the prior quarter. Net interest income was unchanged from $3.5rnbillion in the two quarters. </p
Therncompany said its second quarter results were primarily driven by credit cyclernrecovery items. Like Fannie Mae, therncompany had lower income from legal settlements on private-label securities;rn$0.4 billion in the second quarter compared to $4.5 billion in the first. These figures were offset by lower derivativernlosses of $1.9 billion versus $2.4 billion in the first quarter and by a shift torncredit provision income of $0.6 billion from an expense of $0.1 billion in thernfirst quarter.</p
FreddiernMac’s expected September dividend payment to Treasury will bring the total paidrnsince the beginning of conservatorship to $88.2 billion. The U.S. Treasury continues to hold $72.3rnbillion in preferred senior stock to secure the company’s debt as dividend paymentsrnare not permitted to reduce that debt. </p
Fannie Mae says that 79 percent of its conventional guarantyrnbook of business is now comprised of loans it had purchased or guaranteed since the beginning of 2009. Twenty-six percent of the “new” loans are homernpurchase mortgages and 74 percent are refinance loans. The refinance loans include 14 percent ofrnloans acquired through the Home Affordable Refinance Program (HARP) and 11rnpercent are loans made through the company’s RefiPlus initiative. </p
Fifty-six percent of Freddie Mac’s single-family creditrnguarantee portfolio is post 2008 vintage loans with another 21 percent made up HARPrnand other relief refinance loans.</p
Fannie Mae’s single-family serious delinquency rate<bhas declinedrneach quarter since the first quarterrnof 2010, and was 2.05 percentrnas of June 30, 2014, comparedrnwith 5.47 percent as of March 31, 2010. Freddie Mac had a single family seriousrndelinquency rate of 2.07 percent at the end of June, down from 2.79 percent atrnthe same point in 2013, and a multifamily delinquency rate of 0.02 percent.
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Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.
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