Both government sponsored enterprises (GSEs) reported strong earnings in the first quarter of 2018.  In separate announcements this week Freddie Mac said it had comprehensive income of $2.2 billion and Fannie Mae reported $3.9 billion.  Both had posted heavily losses in the fourth quarter of 2017 due to changes in the tax law which necessitated write-downs of their net deferred assets.

Freddie Mac said its comprehensive income and its net income of $2.93 billion were driven by a $0.4 billion benefit from the new corporate tax rate, and continued growth of its guarantee book of business. The book grew by 5 percent year-over-year to $2.05 trillion.  The Comprehensive income was nearly identical to the first quarter of 2017, but the tax changes had reduced income in the fourth quarter from $2.1 billion to a negative $3.3 billion, necessitating a draw from the Treasury Department for the first time since 2012.

The company had net interest income of $3.02 billion, down from $3.50 billion the previous quarter and the $3.80 billion in the same quarter of 2017.  Non-interest income was $1.83 billion compared to $1.32 billion and $1.46 billion in the two earlier periods.

The company experienced gains of $0.2 billion from market spreads tightening and $0.2 billion from legacy asset dispositions.  These were partially offset by $0.2 billion loss from interest rate impact.  All numbers are after-tax.  The report says the small loss from interest rate impacts reflects the company's implementation of fair value hedge accounting beginning a year earlier.  This significantly reduced the company's accounting sensitivity to changes in interest rates.

The single-family portion of the guarantee portfolio grew 3 percent year-over-year to $1.84 billion while the multifamily guarantee portfolio increased by 30 percent to $213 billion.

Freddie Mac said it provided approximately $80 billion in liquidity to the mortgage market, funding 282,000 single family and 152,000 multifamily rental units during the first quarter.  The company has transferred a portion of the credit risk on 39 percent of the single-family guarantee portfolio, up from 30 percent a year ago and a large majority of credit risk on 90 percent of the multi-family portfolio.

Fannie Mae said its net income of $4.3 billion and comprehensive income of $3.9 billion in the first quarter compared to a net loss of $6.5 billion and comprehensive loss of $6.7 billion in the fourth quarter, both also a result of reclassifying net assets for tax purposes. Both comprehensive and net incomes in the first quarter of 2017 came in at $2.77 billion.

Pre-tax income was $5.4 billion compared to $5.0 billion in the prior quarter and $4.16 billion a year earlier. Net interest income was $5.23 billion, compared to $5.11 and $5.35 billion.  Fee income was $320 million against $4.31 million and $2.49 million.

Fannie Mae provided approximately $113 billion in liquidity to the single-family mortgage market and $11 billion in multifamily financing in the first quarter of 2018.  The combined total enabled the financing of 638,000 units of residential housing.  Of the total, 154,000 units were multi-family rentals, 90 percent of which were affordable to families earning at or below 120% of the area median income.

Fannie Mae is also transferring significant portions of the credit risk on both their single and multifamily mortgages.   As of March 31, 2018, $995 billion in single-family mortgages, or approximately 34 percent of loans in the company's single-family conventional guaranty book of business, were covered by a credit risk transfer transaction and nearly 100 percent of its new multi-family business volume had lender risk sharing.

After their fourth quarter losses both GSEs are rebuilding their capitol buffers.  Fannie Mae expects to pay a $938 million dividend to Treasury by June 30, 2018 while Freddie Mac will not be required to pay any dividend.