Both government sponsored enterprises (GSEs) reported profitable first quarter financial results for the first quarter. Both will pay a dividend for the quarter to the U.S. Treasury and neither anticipates additional Treasury draws.
On Thursday Fannie Mae reported net income of $1.9 billion and comprehensive income of $1.8 billion for the first quarter of 2015 compared to net income of $1.3 billion and comprehensive income of $1.34 billion in the fourth quarter of 2014. Net income increased due primarily to lower fair value losses in the first quarter of 2015.
Net interest income, which includes guaranty fee revenue, was $5.1 billion for both the first quarter of 2015 and the fourth quarter of 2014. Net interest income in the first quarter was driven by guaranty fee revenue, including amortization income from prepayments, and interest income earned on mortgage assets in the company's retained mortgage portfolio. The company expects that guaranty fees will continue to account for an increasing portion of its net interest income both because of the impact of guaranty fee increases and the shrinking of the retained mortgage portfolio.
The company reported a positive net worth of $3.6 billion as of March 31, 2015. As a result it will pay a dividend to the U.S. Treasury of $1.8 billion in June. The June payment will bring the total of dividends the company has paid to $138.2 billion.
The single family serious delinquency rate in Fannie Mae's portfolio was 1.78 percent in the first quarter. The rate has declined for 20 consecutive quarters since the first quarter of 2010 when it was 5.47 percent. The pace of decline has slowed in recent months and Fannie Mae said it expects this to continue due to the negative impact of long foreclosure timelines in some states, particularly New York, Florida, and New Jersey.
Fannie Mae President and CEO Timothy J. Mayopoulos called the first quarter one of strong financial performance with solid revenues. "While we experienced some interest rate volatility again this quarter, we expect to remain profitable on an annual basis for the foreseeable future," he said. "We continued to make progress against our goals, and we are managing the company on a basis that produces good economic value for the taxpayer. We are focused on delivering value to our business partners and making it simpler and easier for lenders to serve the housing market safely, efficiently, and profitably."
Earlier in the week Freddie Mac reported first quarter 2015 earnings that were positive for the 14th consecutive quarter. The company said it had net income of $524 million, more than double the $227 million reported in the fourth quarter of 2014, and comprehensive income of $746 million compared to $251 million.
These increases were primarily driven by lower derivative losses as interest rates declined and the yield curve flattened less in the first quarter of 2015 compared to the fourth quarter of 2014. These losses totaled $2.4 billion, of which $1.8 billion was related to fair value changes. Additionally, Freddie Mac reclassified certain seriously delinquent single-family mortgage loans from held-for-investment to held-for-sale in the first quarter of 2015, a reclassification that resulted in a benefit for credit losses, offset by lower other non-interest income and higher non- interest expense.
Net interest income was $3.65 billion compared to $3.59 billion in the previous quarter with guarantee fees accounting for about 40 percent of the total.
Freddie Mac said the portion of its single-family book of business originated after 2008 continues to grow and now accounts for 61 percent of that portfolio. HARP and other relief refinance loans represent an additional 20 percent.
The company continues to reduce its exposure to loss, selling both first and mezzanine loss positions on $44.2 billion in single-family mortgage to private investors during the first quarter and $4.1 billion of less liquid assets including $300 million in unpaid principal balance (UPB) seriously delinquent single-family loans. Freddie Mac also plans to conclude its largest single sale of seriously delinquent loans (nearly $1 billion in UPB) in the second quarter.
Freddie Mac's serious single family delinquency rate fell to 1.73 percent in the first quarter of 2015 compared to 2.20 percent one year earlier. The multifamily delinquency rate was 0.03 percent.
Donald H. Layton, Freddie Mac's chief executive officer said, "Our strong business momentum from last year carried into the first quarter, enabling us to again produce earnings despite a continued declining rate environment, so we can return further dividends to taxpayers. We continue to focus on serving our growing customer base better to support the U.S. economy, innovating to become a more competitive company, and reducing risk to the taxpayer. We are also working under FHFA leadership to make the industry stronger, with a growing focus on responsibly increasing access to affordable housing for the nation's borrowers and renters."
Based on its net worth of $2.5 billion at the end of the quarter and less the current 1.8 capital reserve the company will pay a first quarter dividend to the U.S. Treasury of $746 million. This will bring the total cumulative dividend payments to Treasury to $92.6 billion.