Fannie Mae stories dramatic capital positive aspects within the third quarter

Fannie Mae more than doubled its net worth year-over-year in the third quarter, which will likely help as it may face new regulatory targets and need to disclose more about its capital position.

The government-sponsored company's net worth for the quarter was $ 42.2 billion, down from $ 20.7 billion in the same period last year and $ 37.3 billion in the prior three months. (Fannie switched to hedge accounting in 2021, so previous results are only approximate as they were calculated using a different methodology that aimed to offset quarterly fluctuations in market value that would otherwise have different effects on securities and financial instruments used to manage it . their risks.)

Fannie's net wealth gain follows a stellar year for the mortgage industry that may be difficult to achieve, although some projections – like those of Fannie's competitor Freddie Mac – are relatively optimistic. Fannie's recent earnings figures stayed strong but neared historic norms, reporting net income of $ 4.8 billion for the third quarter, compared to $ 4.2 billion a year ago and $ 7.2 billion a year ago. Dollars in the previous three month period.

“When we met last quarter to share our strong second quarter results, I found that they came against the backdrop of a very strong economy, persistently low interest rates and a sharp rise in home prices. We saw these trends continue into the third quarter, but to a lesser extent, "said David Benson, Fannie's president and interim chief financial officer, during the GSE conference call.

Refinancing loans bought by Fannie have declined, but home purchase mortgages have increased, in line with the typical shift in the market cycle as interest rates rise.

"In recent experience, the refinancing acquisitions were at their lowest level since the first quarter of 2020, as many borrowers have already used the low interest rate environment for refinancing," said Benson. He found that the third-quarter purchase share of 39% was the highest since the third quarter of 2019. The single-family homes Fannie purchased in the third quarter of this year totaled $ 115.4 billion.

Fannie and Freddie's annual performance plan goals for fiscal year 2022, released by the Fannie and Freddie regulator on the same day as their earnings, make it clear that they strive to maintain their financial soundness while ensuring that they are always available to access Enable affordable and fair credit.

In addition to measures in line with the new goals of diversity and inclusion, justice and affordable housing, the FHFA will issue a regulation proposal for corporate capital planning. The performance goals also include a plan to collect feedback and evaluate a newly implemented performance management system.

"We share the belief of (FHFA) Acting Director (Sandra Thompson) that our housing mission, sustainability, safety and solidity are inextricably linked," said Hugh Frater, CEO of Fannie, during the conference call.

Fannie plans to expand efforts to identify borrowers who could be serviced by their HomeReady low down payment loans but may be excluded from traditional risk taking, Frater said, noting that this is a key component of the new equity home finance plan the GSE could be due at the end of the year.

"We actively listen to stakeholders as we prepare our plans, and listening sessions organized by the FHFA will help strengthen our plans," said Frater. "The FHFA's leadership on home ownership is in line with its actions in a variety of areas, including expanding our investment in low-income home tax credits and also the FHFA's recent decision to allow desktop valuations on many home loan acquisitions in 2022."

The GSE's goals of maintaining its own financial soundness while remaining able to support affordable housing programs are largely complementary, but the two initiatives can be contradicting each other and are likely to pose challenges in the year ahead.

For example, the decision to withdraw the adverse market fee levied on refinancing has given underserved borrowers with income constraints more access to credit, but has also reduced some of the profit and capitalization potential of their GSEs. Fannie's warranty fee income decreased as a result of this decision, but the reduction was relatively small, Benson said.

"The average g-fee charged on acquisitions in the third quarter compared to the previous quarter is down slightly from 47.9 basis points to 47.3," noted Benson. “The elimination of the disadvantageous market refinancing fee contributed to the reduction in fees.

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