Fannie Mae in reporting net income of $1.8 billion in the third quarter of 2012 from $5.70 billion in net revenue compared to a net loss of $5.1 billion on $5.78 billion in revenue in the third quarter of 2011. Thus far in 2012 the company has reported $9.7 billion in net income and expects to post positive returns for the entire year for the first time since 2006. The company has been operating under federal conservatorship since September 2008.
The higher net income was the result of lower credit-related expenses which the company attributed to an increase in actual and expected home prices, higher sales prices on its real estate owned (REO) properties, and a decline in fair value losses. Credit related expenses were $2.03 billion compared to $4.89 billion one year earlier and the company reported comprehensive income of $2.6 billion in the third quarter of 2012.
Fannie Mae will be able to pay the required $2.9 billion dividend to the Department of the Treasury under its Senior Preferred Stock Agreement without requesting a further draw from Treasury. The divided is based on the total liquidation preference of Treasury's stock which remains at $117.1 billion. Through September 30 Fannie Mae has paid $28.5 billion in cash dividends to Treasury. To date Fannie Mae has received $116.1 billion in support from taxpayers through its Treasury draws. It has not required any support from Treasury thus far in 2012.
In August the terms governing the company's dividend obligations on the senior preferred stock were amended and future dividends will equal the amount, if any, by which the company's net worth as of the end of the preceding quarter exceeds an applicable capital reserve amount. The applicable capital reserve amount will be $3.0 billion for each quarter of 2013 and will be reduced by $600 million each year until it reaches zero in 2018.
"We are seeing signs of sustained improvement in housing and our actions to support the housing recovery have generated strong financial results in 2012," said Timothy J. Mayopoulos, president and chief executive officer. "Fannie Mae's priorities are well aligned with the public interest. Our financial condition has improved markedly. We have paid the Treasury $8.7 billion in 2012 and our expected ability to pay taxpayers is growing. We continue to fund the mortgage market, assist homeowners in distress, and lay the foundation for a better housing finance system."
"We reported strong revenue for the first nine months of 2012 and expect to report annual net income for the first time since 2006," said Susan McFarland, executive vice president and chief financial officer. "The improvement in our financial condition was driven primarily by a substantial reduction in credit expense due, in large part, to higher home prices and a reduction in seriously delinquent loans. We continue to focus on foreclosure prevention solutions to reduce delinquencies and to keep homeowners in their homes."
Thus far in 2012 Fannie Mae has provided funds for 3.4 million loan transaction including 700,000 home purchases, 2.3 million home refinancings and 400,000 units of multifamily housing. Since January 2, 2009 when it began its first full year in conservatorship the company has provided approximately $3 trillion in liquidity to the mortgage market.
The company remained the largest single issuer of single-family mortgage-related securities in the secondary market in the third quarter of 2012, with an estimated market share of 52 percent, compared with 43 percent in the third quarter of 2011. Fannie Mae also remained a constant source of liquidity in the multifamily market. As of June 30, 2012 (the latest date for which information is available), the company owned or guaranteed approximately 22 percent of the outstanding debt on multifamily properties.
The company reports continued improvement in the quality of loans it owns or guarantees and says that, while it is too early to know how well the single family loans originated since the beginning of 2009 will ultimately perform, given their strong credit risk profile and performance to date it expects that these loans will be profitable over their lifetime and the company's fee income on these loans will exceed their credit losses and administrative costs.
Single-family conventional loans acquired by Fannie Mae in the first nine months of 2012 had a weighted average FICO credit score at origination of 761 and an average original loan-to-value ("LTV") ratio of 74 percent. The average original LTV ratio for the company's acquisitions increased in the first nine months of 2012 because the company acquired more loans with higher LTV ratios in that period than in prior periods as changes to the Home Affordable Refinance Program ("HARP") were implemented.
The company's total loss reserves decreased to $66.9 billion as of September 30, 2012 from $76.9 billion as of December 31, 2011 and it expects the trends of stabilizing home prices and declining single- family serious delinquency rates will continue, although it expects serious delinquency rates to decline at a slower pace than in recent periods. It does not expect total loss reserves to increase above $76.9 billion in the foreseeable future. The company also believes that its credit-related expenses will be significantly lower in 2012 than in 2011 although they could vary significantly during some periods in the future.
Fannie Mae acquired 41,884 single-family REO properties, primarily through foreclosure, in the third quarter of 2012, compared with 43,783 in the second quarter of 2012. As of September 30, 2012, the company's inventory of single-family REO properties was 107,225, compared with 109,266 as of June 30, 2012. The carrying value of the company's single-family REO was $9.3 billion as of September 30, 2012.
The company's single-family foreclosure rate was 1.01 percent for the first nine months of 2012. This reflects the annualized number of single-family properties acquired through foreclosure or deeds-in-lieu of foreclosure as a percentage of the total number of loans in Fannie Mae's single-family guaranty book of business.