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Rising interest rates hampered mortgage giants Fannie Mae and Freddie Mac’s portfolio expansion last year, but rising home prices helped both companies post double-digit growth in profits and net worth.
At $17.4 billion, Fannie Mae’s net income This was an increase of 35% compared to a year ago. Freddie Mac boosts net income Both companies announced this week that their quarterly and full-year results rose 13% to $10.5 billion.
Fannie Mae Chief Executive Officer Priscilla Almodovar said, “Sturdy home prices throughout the year contributed to our company’s earnings, primarily due to the release of credit reserves reflecting actual and expected increases in home prices.” It had a direct impact on the.” financial statement Wednesday.
Fannie and Freddie Profits, 2018-2023
Source: Fannie Mae and Freddie Mac Annual Earnings Report.
chris lowne
Freddie Mac Chief Financial Officer Chris Lown also said The company’s 2023 net income growth was primarily driven by rising home prices, which allowed the company to release $872 million in credit reserves in its single-family business. In 2022, the company increased its loss reserves by $1.8 billion due to deteriorating housing market conditions.
The mortgage giant’s profits were also boosted by a controversial change to upfront fees, known as loan-level pricing adjustments (LLPA), implemented last spring. Fannie & Freddie’s federal regulator said it also eliminated upfront fees for first-time homebuyers of limited means, saying the price adjustment was aimed at helping the companies improve their capital positions. .
Fannie Mae Chief Financial Officer Chrissa Halley said 2023 earnings were supported by “healthy guarantee income” and rising investment yields.
“While base guarantee fee income increased slightly in 2023, higher interest rates during the year resulted in lower deferred guarantee fee income due to lower refinance activity,” Halley said. “This was offset by higher income due to higher yields on securities in our corporate liquidity portfolio, again due to a rising interest rate environment.”
New Purchase Mortgage Business, 2018-2023
Source: Fannie Mae and Freddie Mac Annual Earnings Report.
Since reaching a pandemic peak of $881 billion in 2021, Fannie Mae and Freddie Mac have lost two years of new purchase loan business in the face of rising mortgage rates, soaring home prices and a lack of inventory for sale. It is decreasing continuously.
Almodovar said Fannie Mae will help more than 380,000 first-time homebuyers purchase a home in 2023 and has worked to reduce upfront costs for homebuyers.
priscilla almodovar
“We continue to modernize the home appraisal process by using models and analyzes that can provide lower-cost appraisal exemptions and alternatives,” Almodovar said. “Through these options, low-to-moderate income borrowers were able to save an estimated $52 million in upfront costs in 2023. Additionally, for some transactions, an attorney in place of a traditional lender’s title insurance policy We also give lenders the option of using our opinion.”
Rown also highlighted that of the 800,000 home purchases Freddie Mac financed in 2023, about half were to first-time homebuyers.
“This is the highest percentage among first-time homebuyers since Freddie Mac began tracking this statistic 30 years ago,” Lown said.
Halley said the $316 billion in single-family mortgages Fannie Mae acquired or guaranteed last year was down 50% from 2022 and the lowest amount of new business since 2000.
Rising mortgage rates have removed the incentive for most homeowners to refinance, and mortgage purchases accounted for 86% of Fannie Mae’s new business last year, Halley said.
Fannie Mae acquired or guaranteed $273 billion in purchase loans, a 28% decrease from 2022. Freddie Mac’s purchase loan business was less severe, down 22% to $265 billion.
This narrowed the gap between Fannie Mae and Freddie Mac’s purchase loan businesses to just $8 billion, down from $86 billion in 2020.
Single-family guarantee portfolio reaches $6.64 trillion
Source: Fannie Mae and Freddie Mac Annual Earnings Report.
Together, Fannie Mae and Freddie Mac guaranteed payments on $6.64 trillion in single-family mortgages as of December 31, 2023.
At the end of last year, Freddie Mac guaranteed payments to investors on its portfolio of single-family mortgages, up 2% from a year earlier.
Fannie Mae’s single-family mortgage portfolio will grow to $3.6 trillion in 2023 as homeowners in the portfolio pay off their mortgage balances as quickly as the mortgage giant adds new loans. It remained flat.
Fannie Mae faced stiff competition from Freddie Mac last year, but its single-family mortgage guarantee portfolio outpaced its smaller rival by $561 billion. However, in 2020, the difference was nearly double his $1 trillion.
Total net worth reaches $125 billion
Source: Fannie Mae and Freddie Mac Annual Earnings Report.
Fannie and Freddie could each increase their net worth by 29% to a total of $125 billion in 2023 and eventually be released from government conservatorship if political winds change. Staying on track.
Fannie Mae’s net assets increased to $77.7 billion, an increase of $17.4 billion from the same period last year. Freddie Mac increased its net worth by $10.7 billion, bringing its total net worth to $47.7 billion as of Dec. 31.
“This increase strengthens our nation’s fiscal stability and allows us to continue to be a reliable source of mortgage credit for America’s homeowners and renters,” Almodovar said.
Nevertheless, Halley said the company remains “significantly undercapitalized” and needs an additional $243 billion to be considered fully capitalized.
Fannie and Freddie were placed into government conservatorship in 2008 after potential losses from the subprime mortgage meltdown threatened to put them out of business. But the move was meant to be temporary, with the mortgage giant long ago repaying the $191 billion in taxpayer bailouts plus interest.
How much net worth Fannie and Freddie would need to emerge from conservatorship is “highly debatable,” former Freddie Mac CEO Donald Layton told the Conservative Party last fall. I stated this in an opinion article for . New York University Furman Center blog. Under current regulations, Fannie and Freddie would still need about three times as much capital to emerge from conservatorship, Furman wrote.
However, these regulations are controversial, and based on his own research on the results of government-mandated annual stress tests, Leighton said: estimated in advance A recapitalization could be considered if Fannie and Freddie’s net assets reach $150 billion, and “requirements could be slightly lower.”
Layton wrote in September that the mortgage giant could raise even more capital through the issuance of new common stock if lawmakers could agree on a plan to relist. Privatization of GSEs (Government Sponsored Enterprises) was a hot topic during the Trump administration, but Congress has shown little interest recently.
“As far as I can tell, the general consensus is that Congress does not have the appetite, either now or in the foreseeable future, to commit the significant time and resources necessary to attempt serious GSE reform,” Furman said. he wrote. .
That won’t stop Mr. Almodóvar from planning an eventual exit from the conservatorship and pondering how it would benefit Fannie Mae. Bloomberg reported last month..
“The conservatorship wasn’t permanent, right?” Almodovar told Bloomberg.
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