Not to be Outdone; Fannie Profits Bring Dividend Total to $136.4 Billion

Like Freddie Mac, Fannie Mae has also reported a profitable fourth quarter of 2014 and a profitable year.  The company had both net and comprehensive income for the quarter of $1.3 billion and for the year a net of $14.2 billion and comprehensive income of $14.7 billion.

Comparing the year's total results with those of 2013 was, as with Freddie Mac's revenues, virtually meaningless as a large portion of the 2013 net of $84 billion and comprehensive income of $84.8 billion resulted from a one-time release of the company's valuation allowance against its deferred tax assets.

Fannie Mae paid a total of $20.6 billion in dividends to Treasury in 2014 and expects to pay an additional $1.9 billion in March 2015, fringing the company has paid to $136.4 billion.  Dividends do not reduce prior Treasury draws, which total $116.1 billion since 2008.

Fannie Mae said its 2014 results were driven by strong revenues from net interest income, income from settlement agreements related to private-label mortgage-related securities, and credit-related income due primarily to increasing home prices during the year. These were partially offset by a provision for federal income taxes and fair value losses on risk management derivatives due to declines in longer-term interest rates in 2014.  The company will pay $6.9 billion in federal income taxes for the year, an effective tax rate of 32.8 percent.

Fannie Mae's net income of $1.3 billion and comprehensive income of $1.3 billion for the fourth quarter of 2014 compares to net income of $3.9 billion and comprehensive income of $4.0 billion for the third quarter of 2014. Fourth quarter results were driven by net interest income, partially offset by fair value losses on risk management derivatives due to declines in longer-term interest rates in the quarter.

Timothy J. Mayopoulos, Fannie Mae's president and chief executive officer said, "Fannie Mae had another strong year of financial performance. We continued to manage our business effectively, put the legacy issues from the financial crisis behind us, and implement innovations to lead the industry toward a sustainable housing finance system for today and the future.  We are committed to serving our partners and focused on reducing barriers to lending to qualified borrowers."

Net revenues consisting of net interest income and fee and other income, were $5.5 billion for the fourth quarter of 2014, compared with $6.0 billion for the third quarter of 2014. For the year, net revenues were $25.9 billion, compared with $26.3 billion in 2013.

Net interest income, which includes guaranty fee revenue, was $5.1 billion for the fourth quarter of 2014, compared with $5.2 billion for the third quarter of 2014. For the year, net interest income was $20.0 billion for 2014, compared with $22.4 billion for 2013. The decrease in net interest income compared to 2013 was due primarily to lower interest income from retained mortgage portfolio assets as the size of that portfolio has declined.  This has been partially offset by an increase in net interest income from guaranty fees.

Fannie Mae said it expects it will continue to see an increasing portion of net interest income coming from guaranty fees as a result of both the shrinking portfolio and fee increases.  The guaranty fee percentage of income from loans underlying Fannie Mae MBS increased to approximately half in 2014, compared with more than one-third in 2013.

Fee and other income was $323 million for the fourth quarter of 2014, compared with $826 million the previous quarter.  The decrease was due to third quarter income from settlement agreements related to private-label mortgage-related securities sold to Fannie Mae. For the year, fee and other income was $5.9 billion for 2014, compared with $3.9 billion for 2013. The increase for the year was again due to private-label settlement agreements. 

Credit-related income, which consists of a benefit for credit losses and foreclosed property expense or income, was $97 million in the fourth quarter of 2014, compared with $836 million in the third quarter of 2014.  For the year, credit-related income was $3.8 billion, compared with $11.8 billion in 2013.  Both the quarterly and annual decreases were attributed to a slowing in home price growth.  In addition, 2013 benefited from foreclosed property income primarily due to the recognition of income related to compensatory fee agreements.

Net fair value losses were $2.5 billion in the fourth quarter compared to $207 million in the third and $4.8 billion for the year, down from a gain of $3.0 billion in 2013. The company recorded fair value losses during the quarter and year of due primarily to declines in longer-term interest rates negatively impacting the value of the company's risk management derivatives.

The company's Single-Family business segment had net income of $1.6 billion in the fourth quarter of 2014, compared with $2.1 billion in the third quarter of 2014 due to lower credit-related income. For the year, the net income was $8.5 billion, compared with $48.3 billion in 2013. The decrease in annual net income was due primarily to the release of the company's valuation allowance in 2013, as well as a decrease in credit-related income, partially offset by an increase in guaranty fee income.

Single-Family guaranty fee income was $11.7 billion in 2014, compared with $10.5 billion in 2013. The Single-Family guaranty book of business was valued at $2.85 trillion as of December 31, 2014 and September 30, 2014 and $2.89 trillion as of December 31, 2013.

Single-Family credit-related income was $94 million in the fourth quarter compared with $748 million in the third quarter.  For the year, Single-Family credit-related income was $3.6 billion, compared with $11.2 billion in 2013. The decrease in annual credit-related income for both quarter and year was due primarily to slower home price appreciation in 2014 as compared with 2013.  In addition, 2013 Single-Family credit-related income benefited from foreclosed property income due primarily to the recognition of income related to compensatory fee arrangements.

Multifamily net income was $373 million in the fourth quarter of 2014, compared with $384 million the previous quarter. This drop was driven primarily by changes in credit-related income and the provision for federal income taxes, offset by an increase in gains from sales of partnership investments. For the year, Multifamily net income was $1.5 billion, compared with $10.1 billion in 2013.

Multifamily guaranty fee income was $337 million for the fourth quarter of 2014, compared with $332 million for the third quarter of 2014. For the year, Multifamily guaranty fee income was $1.3 billion in 2014 compared with $1.2 billion in 2013.  The Multifamily guaranty book of business was $203.3 billion as of December 31, 2014, compared with $200.2 billion as of September 30, 2014 and $200.6 billion as of December 31, 2013.

Capital Markets net income was $448 million in the fourth quarter of 2014, compared with $2.3 billion in the third quarter of 2014. The group had net income of $8.1 billion for the year, compared with $27.5 billion for 2013. The group's net interest income was $1.7 billion for the quarter compared with $1.8 billion for the third quarter. For the year, Capital Markets net interest income was $7.2 billion compared with $9.8 billion in 2013. Net investment gains were $1.9 billion for the quarter and $6.4 billion for the year.

Capital Markets retained mortgage portfolio balance decreased to $413.3 billion as of December 31, 2014, compared with $490.7 billion as of December 31, 2013, resulting from purchases of $178.3 billion and liquidations and sales of $255.7 billion during the year.

Fannie Mae said that 62 percent of its single-family portfolio consists of loans made since 2009 with another 11 percent made up of loans through the Home Affordable Refinance Program (HARP.)  Only 19 percent of loans were originated prior to 2009.   

 The single-family serious delinquency rate for Fannie Mae's book of business has declined for 19 consecutive quarters since the first quarter of 2010, and was 1.89 percent as years end compared with 5.47 percent as of March 31, 2010. The pace of this decline has slowed in recent months and the company expects this trend to continue.  The serious delinquency rate and the period of time that loans remain seriously delinquent continue to be negatively impacted by the length of time required to complete a foreclosure in some states.

Fannie Mae provided approximately $434 billion in liquidity to the mortgage market in 2014, including approximately $128 billion in the fourth quarter, through its purchases and guarantees of loans.  This resulted in:

• 887,000 home purchases in 2014, 243,000 in the fourth quarter.
• 937,000 mortgage refinancings for the year and 264,000 in the fourth quarter.
• 446,000 units of multifamily housing in 2014, 157,000 of these in the fourth quarter.

The company remained the largest single issuer of single-family mortgage-related securities in the secondary market in the fourth quarter with an estimated market share of new single-family mortgage-related issuances of 40 percent for the quarter and year. The company, as of September 30, 2014, also owned or guaranteed approximately 19 percent of the outstanding debt on multifamily properties.