Fannie Mae and Freddie Mac (the GSEs, or "government-sponsored enterprises") were already well past having paid back taxpayer bailouts before this week's earnings releases. Freddie Mac has paid back $36.9 billion more than it drew from taxpayers and the number is $46.6 billion for Fannie Mae. Both have capital buffers at the moment, but those are slated to be drawn down to $0 by the beginning of 2018. Neither the GSEs nor their overseer the FHFA are too thrilled about that.
FHFA Director Mel Watt expressed concern earlier this year. Before authorizing a full sweep of profits in the first quarter, he told congress he was concerned about the planned drawdown and not to be surprised if he took steps to protect some of the GSE's capital buffers. The GSEs clearly had this in mind when Freddie and Fannie announced $2.0 billion and $3.1 billion dividends respectively, but in only slightly different words, said they would only pay whatever the FHFA directed them to pay. In other words, if the FHFA declares the dividends to be less than $2.0 and $3.1 billion respectively, the GSEs would net the difference to their capital buffers. Simply put, the GSEs are saying 'we'll keep any capital reserves that FHFA allow us to keep!'
That was the most interesting part of this week's earnings releases, and here are the nitty gritty numbers underlying them:
Fannie Mae's net income is an increase
from its net income of $2.8 billion for the first quarter of 2017. The increase
was due primarily to an increase in credit-related income, from $179 million to
$1.233 billion and a shift to investment gains ($385 million) in the second
quarter from investment losses ($9 million) in the first quarter. This was partially offset by higher fair
value losses on the company's risk management derivatives.
Net revenues, consisting of net interest
income and fee and other income, were $5.4 billion for the second quarter of
2017, compared with $5.6 billion for the previous period. Net interest income alone was $5.0 billion
for the second quarter of 2017, compared with $5.3 billion for the first
quarter of 2017. The decrease was due to lower guaranty fee income from decreased
amortization income arising from lower refinance activity.
The company said it continues to increase
the role of private capital in the mortgage market and reduce the risk to its business,
to taxpayers, and the housing finance system through its credit risk transfer
transactions, which transfer a portion of the mortgage credit risk on some of
the recently acquired loans in its single-family book of business. As of June
30, 2017, $798 billion in single-family mortgages or approximately 28 percent
of the loans in the company's single-family conventional guaranty book of
business, measured by unpaid principal balance, were covered by a credit risk
transfer transaction.
"Our results reflect the strength of our
business model and the momentum of our strategy," said Timothy J. Mayopoulos,
President and Chief Executive Officer. "We are focused on helping lenders save
time and money, making the mortgage process easier, and expanding access to
credit in ways that make sense. We will continue to deliver innovative
solutions that help our customers succeed, improve the mortgage process, and
create safe and sustainable opportunities for families to own or rent a home."
Freddie Mac's net income of $1.7 billion
was down from $2.2 billion in the first quarter, and its comprehensive income
declined over the same period from $2.2 billion to $2.0 billion.
Net interest income was $3.4 billion, a
decrease of $0.4 billion, or 11 percent, from the first quarter of 2017 and
unchanged from the prior year. The decrease primarily reflected lower
amortization income and a 2 percent decline in the balance of the
mortgage-related investments portfolio.
Freddie Mac said it transferred a large
majority of the credit risk on $12.3 billion of loans during the quarter,
bringing the aggregate since the program began in 2009 to over $200 billion.
The company's multifamily guarantee
portfolio increased to $174 billion, up 23 percent form a year earlier. The purchase volume in its multifamily book
was up 50 percent from a year ago to $14.1 billion and outstanding loan
commitments of $19 billion were also significantly higher than in the prior
year.
Donald H. Layton, Freddie Mac's CEO said, "Our
continued very solid financial results and strong business fundamentals reflect
the company's transformation into a well-run commercial enterprise. This
transformation is enabling us to better deliver on the mission that is our
purpose - to provide liquidity, stability and affordability to the American
primary mortgage market. We're doing that by helping lenders of all sizes
compete which, in turn, expands affordable housing opportunities for borrowers
and renters nationwide. Additionally, through our award-winning credit risk
transfer programs, we're fulfilling our mission with much less risk to
taxpayers than in the past.