Freddie Mac and Fannie Mae each
reported strong third quarter financial results today. For Freddie it was the eighth consecutive
profitable quarter and for Fannie Mae the seventh. With the dividend payments to Treasury, Fannie will have returned more than 97% of taxpayer, and Freddie will eclipse their draw amount by a fraction of a percent.
Freddie Mac's pretax income,
the second largest in the company's history, was $6.5 billion and its net
income was $30.5 billion compared to pretax income of $4.9 billion in the
second quarter and net income of $5.0 billion.
The increase in net income was almost totally due to the $23.9 billion
impact of released valuation allowance on deferred tax assets. Comprehensive income was $30.4 billion
compared to 4.4 billion the previous quarter.
Under the revised Senior
Preferred Stock Agreement the company has a dividend obligation to the U.S.
Treasury of $30.4 billion. The agreement
requires both Freddie Mac and Fannie Mae to pass through all of their net
income less a retained buffer which will diminish over time. This quarter's dividend will bring the
aggregate paid to Treasury since Freddie Mac was put into conservatorship to
$71.345 billion. The company received
draws of $71.336 billion, and Treasury's holdings of senior preferred stock
remain at that level.
$1.6 billion increase in pre-tax income primarily reflects higher other
non-interest income driven by gains on securities and on multifamily mortgage
loans as well as settlement proceeds from private label securities
litigation. These numbers were partially
offset by third quarter derivative losses of $0.1 billion compared to $1.4
billion in gains in Q2.
addition to the tax benefits from the release of the
deferred tax asset valuation allowance, the increase in comprehensive income came from higher net
quarter income from improved fair values on the company's agency and non-agency
available-for-sale (AFS) securities.
Despite its recent string of positive results the
company cautions the level of these earnings in recent periods is not sustainable
over the long term. Its financials have
benefited from strong home-price appreciation which is expected to moderate,
and have also included benefits from settlements of litigation with private
label securities and repurchase claims.
Also the mandated shrinkage of its mortgage related investment portfolio
will reduce earnings over time.
Freddie Mac reported that the credit quality of its
portfolio continued to grow as the share of that portfolio consisting of legacy
loans decreased. The post-2008 book of
business grew to 52 percent of the single-family credit guarantee portfolio
during the third quarter excluding relief refinances which increased to 21
originated in 2005 through 2008 account for the majority
of the $73 billion in
provision for credit losses the company has recorded since
the beginning of 2008 and these continue to represent a
declining portion of the
company's single-family credit guarantee
The company completed approximately 128,000 workouts
during the first nine months of 2013 including over 60,000 loan
modifications. It has also continued to
promote neighborhood stability by promoting sales of owned real estate (REO) to
non-investors. Approximately 2/3 of REO
sales since 2009 have been to owner occupants.
The serious delinquency rate among single family loans
was 2.58 percent at the end of September compared to 2.79 percent at the end of
June. While still abnormally high, the company says it compares favorably with
the national rate of 5.88 percent reported by the Mortgage Bankers Association
at the end of June. The multifamily
delinquency rate (loans 60 days or more past due or in foreclosure) was 0.05
percent at the end of the third quarter compared to 0.09 percent at the end of
Fannie Mae reported a quarterly
profit in the third quarter of 2013 of $8.7 billion compared to $10.08 billion
in the second quarter and $1.8 billion in the third quarter of 2013. Comprehensive income was $8.6 billion. Comprehensive income in the prior quarter
was $10.25 billion and was $2.56 billion in the Q3 2012.
The company will pay $8.6
billion in dividends to the U.S. Treasury bringing its total payments during
conservatorship to $114 billion. Senior
preferred stock held by Treasury remained at $117.1 billion.
Fannie Mae said
its strong quarterly results come primarily from continued stable revenues and
credit-related income. Home prices increased during the quarter which resulted
in a reduction of loss reserves recognition of fees received from Bank of
America from a compensatory fee agreement also contributed to credit related
Fannie Mae continued to provide
liquidity and stability in the mortgage markets. It remained the largest single issuer of
single family mortgage-related securities in the third quarter with an estimated
48 percent share in the third quarter.
During the second quarter, the last period for which information is available,
it owned or guaranteed approximately 21 percent of the outstanding debt on multifamily
The company says
the quality loans acquired since 2009 continue to be strong. In the first nine months of 2013 single
family conventional loans acquired by the company had a weighted average
borrower FICO score of 754 and a weighted average loan to value ratio of 75
percent. Loans originated since 2009 now comprise 75
percent of Fannie Mae's single-family conventional guaranty book of
inventory of single-family foreclosed properties (REO) increased in the third
quarter to 100,941 units compared to 96,920 units at the end of June. The company said that it both acquired more
single family properties, 37,353 compared with 36,106 in the second quarter but
saw dispositions of REO slow. The
carrying value of the REO portfolio was $10.0 billion at the end of the
quarter. The company's single family
foreclosure rate, that is the annualized total number of properties acquired through
foreclosure or deeds-in-lieu as a percentage of loans in its guaranty book of
business, was 0.85 percent for the first nine months of 2013.