Fannie Mae joined Freddie Mac this
morning in declaring an increased second quarter profit and announcing it would
not request a draw from the Department of the Treasury. Instead, the government sponsored enterprises
(GSE) will pay a $2.9 billion dividend to the Department on the senior
preferred stock it owns.
Fannie Mae reported income of $5.11
billion in the second quarter, nearly twice the $2.72 billion income reported
in the first quarter. In the second
quarter of 2011 there was a loss of $2.99 billion. The company has now reported $7.8 billion in
net income in thus far in fiscal 2012 compared to a loss of $9.4 billion at the
same point in 2011. Fannie Mae said the improvement
in its financial results were nearly all due to credit-related income resulting
primarily from an improvement in house prices, improved sales prices on its
owned real estate (REO), and a decline in the serious single-family delinquency
At the end of the second quarter the
company had net worth of $2.8 billion reflecting total comprehensive income of
$5.4 billion partially offset by the dividend payment to Treasury. The total liquidation preference of the
Department's senior preferred stock is $117.1 billion which requires an
annualized dividend payment of $11.7 billion.
Since the original infusion of money from the Treasury, Fannie Mae has
paid $25.6 billion in cash dividends on the senior stock representing 22 percent
of the amount borrowed from Treasury.
The company's total loss reserves
decreased to $68.0 billion as of the end of the quarter from $76.9 billion as
of December 31, 2011. The company
expects the trends of stabilizing home prices and declining serious delinquency
rates will continue although rates are expected to decline at a slower rate
than in previous quarters. The company
feels that loss reserves peaked at $76.9 billion and will not increase above
that number in the foreseeable future. It
also projects lower credit-related expenses this year than last year.
The company's single family serious
delinquency rate has declined each quarter since Q1 2010 and was at 3.53
percent at the end of June compared to 5.47 percent on March 31, 2010. This decrease is the result of home retention
and foreclosure prevention programs, completed foreclosures, and the company's
acquisition of loans with stronger credit profiles. These more recent and higher credit quality
loans now represent 59 percent of the company's single family guarantee book of
To reduce the credit loses on the legacy
portion of its book of business the company has been focusing on several
strategies including loan modifications.
It completed more than 35,000 modifications during the second quarter
and has completed more than 797,000 since the beginning of 2009. During the second quarter the company also
completed 24,013 short sale and deeds-in-lieu transactions and implemented
5,894 repayment plans or forbearances.
Fannie Mae sharply increased the number
of loans it acquired under the Home Affordable Refinancing Program (HARP 2.0)
during the quarter. These approximately
128,000 HARP 2.0 loans constituted 15 percent of the single-family acquisitions
during the quarter by unpaid principal balance compared to 10 percent in the
If interest rates remain low Fannie Mae
expects that it will continue to acquire a high volume of HARP 2.0 loans, particularly
those with loan-to-value (LTV) ratios over 125 percent. HARP and Refi Plus loans represent
refinancing of loans that are already in the company's book of business and
hence the credit risk of these new loans replaces the risk represented by the
old loans. They have higher serious
delinquency rates and may not perform as well as the other loans acquired since
the beginning of 2009, however the company expects that, because of the lower
payment and the fixed rate, they will perform better than the loans they
The GSE acquired 43,783 single-family
REO properties in the second quarter compared to 47,700 in the first quarter
and disposed of 48,674 properties compared to 52,071. As of June 31 the total inventory of REO was
109,266 compared to 114,157 on March 31.
The carrying value of the REO was $9.4 billion.