Freddie Mac and Fannie Mae each reported
out another successful financial quarter today as each continued to reduce their
respective distressed loan portfolios, replacing them with later vintage
performing loans. Neither however
reported profits at the record levels seen earlier as their portfolios shrink
and legal settlements taper off.
Fannie Mae reported net income and comprehensive
income of $3.7 billion for the second quarter of 2014 while Freddie Mac's net income
was $1.4 billion. Fannie Mae will pay
$3.7 billion in dividends to the U.S. Treasury in September and Freddie Mac
will pay $1.9 billion. Neither of the
two government sponsored enterprises (GSEs) will require a draw on their lines
of credit with the Treasury Department.
Fannie Mae's net
income was down from $5.3 billion in the first quarter and comprehensive income
from $5.7 billion. The company posted net interest
income of $4.9 billion in the second quarter compared to $4.7 billion in the
first and net revenues of $5.3 billion compared to $9.1 billion. The decline in gross and net income was due
primarily to lower income from settlement agreements related to private-label
mortgage related securities sold to the company. The decline was partially offset by an
increase to the company's benefit for credit losses due primarily to higher
home prices in the second quarter.
As a result of both the shrinking
of the retained mortgage portfolio and the impact
of guaranty fee increases, an increasing portion
of Fannie Mae's revenues in recent years has been derived from guaranty fees rather than from interest
income earned on the
company's portfolio assets. The percentage of net interest
income derived from guaranty fees on
loans underlying Fannie Mae MBS increased to approximately half in the first half of 2014,
compared with approximately one-third
in the first half of 2013. The company expects
that guaranty fees will continue to account
for an increasing portion of its revenues.
Net Fair Value Losses were $934 million
in the second quarter
of 2014, compared with $1.2 billion in the first quarter
of 2014. Second
quarter 2014 fair value losses
were driven primarily by losses on risk management derivatives as a result of a decrease
in interest rates.
Fannie Mae's federal income
tax rate was 32.3 percent in the second quarter
of 2014, resulting in a provision for federal income
taxes of $1.8 billion in the second quarter
With the expected
Mae will have paid a total of $130.5 billion
in dividends to Treasury
in comparison to $116.1 billion in draw requests
since 2008. Dividend payments do not offset
prior Treasury draws.
Mac's profitable quarter was the eleventh consecutive one in which it has
posted positive earnings. The second
quarter net of $1.4 billion was, however, substantially lower than the $4
billion net in the first quarter of 2014 and the comprehensive income of $1.9
billion was also down from $4.5 billion in the prior quarter. Net interest income was unchanged from $3.5
billion in the two quarters.
company said its second quarter results were primarily driven by credit cycle
recovery items. Like Fannie Mae, the
company had lower income from legal settlements on private-label securities;
$0.4 billion in the second quarter compared to $4.5 billion in the first. These figures were offset by lower derivative
losses of $1.9 billion versus $2.4 billion in the first quarter and by a shift to
credit provision income of $0.6 billion from an expense of $0.1 billion in the
Mac's expected September dividend payment to Treasury will bring the total paid
since the beginning of conservatorship to $88.2 billion. The U.S. Treasury continues to hold $72.3
billion in preferred senior stock to secure the company's debt as dividend payments
are not permitted to reduce that debt.
Fannie Mae says that 79 percent of its conventional guaranty
book 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 home
purchase mortgages and 74 percent are refinance loans. The refinance loans include 14 percent of
loans acquired through the Home Affordable Refinance Program (HARP) and 11
percent are loans made through the company's RefiPlus initiative.
Fifty-six percent of Freddie Mac's single-family credit
guarantee portfolio is post 2008 vintage loans with another 21 percent made up HARP
and other relief refinance loans.
Fannie Mae's single-family serious delinquency rate
each quarter since the first quarter
of 2010, and was 2.05 percent
as of June 30, 2014, compared
with 5.47 percent as of March 31, 2010. Freddie Mac had a single family serious
delinquency rate of 2.07 percent at the end of June, down from 2.79 percent at
the same point in 2013, and a multifamily delinquency rate of 0.02 percent.