Fannie, Freddie Double Year-over-year Quarterly Earnings Due to Better Credit Allowances
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae and Freddie Mac boasted of strong third quarter financial results, despite the ongoing challenges in the housing and mortgage industries, during their earnings announcements last week.
On a year-over-year basis, both GSEs roughly doubled their net income in the third quarter of 2023 compared with the same period a year ago.
“The third quarter remained challenging for housing – with higher mortgage rates, high home prices, and a limited inventory of homes for sale. Renters, too, continued to face all-time high rents. Against this economic backdrop, Fannie Mae delivered strong third quarter results and remained a reliable source of liquidity and stability for America’s housing market,” said Fannie Mae CEO Priscilla Almodovar.
Said Freddie Mac CEO Michael J. DeVito: “Freddie Mac delivered solid third quarter earnings while supporting the U.S. housing finance system. Fifteen years after entering conservatorship, Freddie Mac is a stronger, more focused company.”
Fannie reported $4.7 billion in net income for this year’s third quarter, up from $2.4 billion in the third quarter of 2022. Net income was down $295 million from this year’s second quarter results.
Freddie Mac booked net income of $2.7 billion in this year’s third quarter, more than double last year’s third-quarter net income of $1.3 billion. The most recent quarter’s profits were up slightly from the second quarter results of $4.5 billion.
For both companies, the better results in this year’s third quarter are due largely to a major difference in the provision for credit losses. This is an expense on a company’s financial statements that estimates potential losses due to credit risk.
In the third quarter of 2022, Fannie Mae’s provision for credit losses was a negative on its financials to the tune of $2.5 billion. In the most recent quarter, the provision was actually reported as a net positive of $652 million. The difference between the two quarter is $3.2 billion.
Freddie Mac’s provision in the third quarter of 2022 lowered net income by $1.8 billion, but it added to this recent quarter’s profits by $263 million, a difference of over $2 billion.
Both companies said the benefit for credit losses for the third quarter of 2023 was primarily driven by increases in actual and forecasted single-family home prices.
The slowdown in the housing market due to home prices and mortgage rates are evident on the company’s financial reports.
So far this year, Fannie Mae has acquired $288 billion in mortgage loans. It would need nearly $400 billion in acquisitions in the fourth quarter to match its volume from 2022 and from the last pre-pandemic year of 2019. Fannie acquired $1.4 trillion in loans in both 2020 and 2021.
Freddie Mac reported single-family acquisition of $85 billion in the third quarter of 2023, down nearly $40 billion from the same quarter in 2022. Its multifamily volume dropped from $14 billion in the third quarter of last year to $13 billion in this year’s third quarter.
Fannie reported $106 billion in liquidity provided to the mortgage market in the third quarter of 2023. It acquired approximately 224,000 single-family purchase loans, of which more than 45 percent were for first-time homebuyers. Fannie also financed approximately 159,000 units of multifamily rental housing in the third quarter, a significant majority of which were affordable to households earning at or below 120 percent of area median income.
Freddie purchased 271,000 single-family loans in the most recent quarter, down from 392,000 in the same quarter in 2022. Only 38,000 of this quarter’s loans were for refinances.
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.
