GSE's Post Quarterly Profits; It all Goes to Treasury

Both of the government sponsored enterprises (GSEs) released second-quarter financial results this week. Each had, to varying degrees, better outcomes than in the first quarter of this year, but substantial losses compared to one year earlier.

Freddie Mac reported a net income of $1.5 billion and comprehensive income of $1.8 billion in the second quarter of 2019. The figures were only slightly changed from the first-quarter net of $1.4 billion and comprehensive total of 1.7 billion but were significantly lower than the figures of $2.5 billion and $2.4 billion generated in the second quarter of 2018.

Net interest income was $2.9 billion, down by $226 million from the previous quarter and $76 million less than the prior year while Guarantee Fee Income of $222 million was up slightly from the two earlier quarters. Average guarantee fees on the single-family credit guarantee portfolio were 39 basis points, up from 34 basis points for the prior quarter.  

The company continued to have significant derivative losses, $2.1 billion on top of $1.6 billion the previous quarter.  It had posted a gain from derivatives of $416 million in the second quarter of 2018.

New business activity totaled $102 billion, up 46 percent or $32 billion from the prior quarter. Home purchase volume rose by 41 percent while refinance volume increased 54 percent. The Single-Family credit guarantee portfolio increased to $1.9 trillion.

The company said it provided homeownership or rental assistance to 596,000 households during the quarter and provided $127 billion in liquidity to the mortgage market.  First-time homebuyers made up 48 percent of new single-family purchase loans and Freddie Mac's loans represented 45 percent of total purchase volume.

The company expects to make a dividend payment to the U.S. Treasury of $1.8 billion bringing its total payments to $119.7 billion.  This is $48.1 billion more than the total draws from Treasury during the financial crisis.

Fannie Mae reported both net and comprehensive income of $3.4 billion during the quarter.  Each was an increase of about $1 billion from the Q1 results.  However, both were down by about the same $1 billion year over year.

Net interest income for the quarter was $5.1 billion compared to $4.7 billion and $5.3 billion for the prior quarter and year respectively. The company said the increase in the recent quarter was due to higher amortization income from its guaranty book of business as mortgage prepayments rose with declining interest rates.  Fee and other income was in the $220 to $240 million range for all three time periods.

The company said it provided $213.1 billion in liquidity to the single-family market and was responsible for a 35 percent share of the new single-family mortgage related securities issued during the quarter.  It also provided $34.1 billion in multifamily financing in the first two quarters of 2019, supporting 354,000 units of multifamily housing.

Fannie Mae has transferred a portion of credit risk on 1.7 trillion in single-family mortgages wince 2013 including $148 billion in the first half of 2019.  Approximately 42 percent of the loans in its single-family guaranty book of business is covered by a credit risk transfer transaction.

The company will pay a divided of $3.4 billion to the Treasury, bringing its payments since being placed in conservatorship in 2008 to $181.4 billion.