GSEs Report Higher Quarterly Earnings
Written By: Joel Palmer, Op-Ed Writer
The two government sponsored enterprises reported much better third quarter financial results than they had in the second quarter of this year.
Fannie Mae and Freddie Mac released their quarterly financial results last week. Despite the pandemic, both firms reported higher net income than they did in the same period a year ago.
Fannie reported net income of $4.2 billion for the quarter, up 68 percent from $2.5 billion in the previous quarter. Their third-quarter net income was also slightly higher than the $3.96 billion it reported in the third quarter of 2019.
Freddie Mac had third-quarter net income of $2.5 billion, an increase of 39 percent over the $1.8 billion they reported in the second quarter. In the third quarter of 2019, the company booked net income of $1.7 billion.
Fannie said its improved results were due to an increase in mortgage prepayment activity, a decrease in fair value losses, an increase in net investment gains, and a shift from credit-related expense to credit-related income. Freddie attributed its performance to its guarantee portfolio growth, higher upfront fee income recognition, and strong margins on multifamily loan commitments.
Fannie Mae’s net worth stood at $20.7 billion as of September 30, up from $16.5 billion as of June 30. Freddie’s net worth increased to $13.9 billion, from $11.4 billion on June 30. Based on their agreements with the U.S. Treasury, the companies may retain quarterly earnings until their net worths reach $25 billion.
As of the end of the quarter, 4.1 percent of Fannie’s single-family book of business and 0.5 percent of its multifamily business were in forbearance. Freddie reported 2.95 percent and 2.21 percent of the loans in the single-family portfolio and the multifamily mortgage portfolio, respectively, were in forbearance.
Fannie said its single-family acquisition volume was $391.4 billion in the third quarter, an increase of 11 percent compared with the second quarter. The increase was driven by a $7 billion increase in refinance volume due to the historically low interest rate environment, resulting in the highest level of refinance volumes in any quarter since the third quarter of 2003.
Freddie reported new business activity of $337 billion, an increase of $105 billion, or 45%, from the prior quarter, driven by higher refinance and higher purchase activity resulting from record low mortgage interest rates in the third quarter.
Fannie’s multifamily guaranty book of business increased by $9 billion during the third quarter to $367 billion. Freddie’s new business activity was $18 billion, down 10 percent from $20 billion in the prior quarter.
“Our performance this year demonstrates our ability to support the mortgage market in a safe and sound manner even during these uniquely challenging times,” said Fannie CEO Hugh Frater. “To continue meeting these challenges, we believe our company and the broader housing finance system would be best served by a responsible end to Fannie Mae’s conservatorship, consistent with FHFA’s goals.”
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
