Fannie Mae's Net Income Doubles from Q1
Fannie Mae is reporting net income and comprehensive income of $2.9 billion for the second quarter of 2016 compared to first quarter net income of $1.1 billion and comprehensive income of $936 million. Freddie Mac, the other government sponsored enterprise (GSE) reported a $1 billion net and a substantial improvement from a first quarter loss earlier this week.
Fannie Mae's net interest income, which includes guaranty fee revenue, increased from $4.77 billion in the first quarter to $5.29 billion in the second, although that income was nearly $400 million lower than during the second quarter of 2015. Fannie Mae said the increase in net income was also due to lower fair value losses driven by smaller decreases in longer-term interest rates than in the first quarter. Those losses narrowed from $2.81 billion in the first quarter to $1.67 billion. Fees and other income fell by $29 million from the first quarter to $174 million.
Other factors driving the improved performance were higher credit-related income due to increasing home prices, a decrease in actual and projected mortgage interest rates, and a decrease in foreclosed property expenses. There were also higher net revenues from an increase in mortgage prepayments.
In recent years, an increasing portion of Fannie Mae's net interest income has been derived from guaranty fees rather than from the company's retained mortgage portfolio assets. This is a result of both the impact of guaranty fee increases implemented in 2012 and the reduction of the company's retained mortgage portfolio. Approximately two-thirds of the company's net interest income in the second quarter of 2016 was derived from its guaranty business and the company says it expects those fees will continue to account for an increasing portion of its net interest income.
"We had another quarter of solid financial performance," said Timothy J. Mayopoulos, president and chief executive officer. "We are carrying through on actions to strengthen our company, support the housing market, and bring innovation to the market for the benefit of consumers, lenders, and taxpayers. We remain a steady, continuous source of mortgage financing to ensure broad access to quality rental housing and predictable long-term mortgages, including the 30-year fixed-rate mortgage."
The company reported a positive net worth of $4.1 billion as of June 30, 2016. As a result, it expects to pay Treasury a $2.9 billion dividend in September 2016. This payment will bring the total of dividends paid to the Treasury to $151.4 billion. During the early years of federal conservatorship which began in August 2008 Fannie Mae took draws from the U.S. Treasury totaling $116.1 billion. Under the senior preferred stock purchase agreement, the payment of dividends does not offset prior draws and Treasury maintains a liquidation preference of $117.1 billion on the company's senior preferred stock. Fannie Mae has not taken a draw in over four years.
Fannie Mae provided approximately $145 billion in liquidity to the mortgage market in the second quarter of 2016. It financed 274,000 home purchases and 311,000 refinances. It also funded 141,000 units of multifamily housing.
Fourteen percent of Fannie Mae's single-family conventional guaranty book of business as of June 30, 2016 consisted of single-family loans acquired prior to 2009 and 69 percent of single family loans acquired since then. HARP and other rescue loans make up the remaining 17 percent of the portfolio. The company reports that the serious delinquency rate this book of business has decreased for 25 consecutive quarters and was 1.32 percent at the end of the second quarter of 2016 compared to 5.47 percent at the peak in the first quarter of 2010.
Despite the improving performance level there is still distress in the market. During the first six months of 2016 Fannie Mae acquired 30,371 single-family homes through foreclosure compared to 44,161 during the comparable period of 2015. It disposed of 41,643 properties during the quarter resulting in a REO inventory of 45,981 at the end of June, down by over 22,000 units year-over-year. The carrying costs for that owned real estate was $5.30 billion compared to $8.0 billion in 2015. Fannie Mae also completed approximately 21,000 loan modifications during the second quarter of 2016.