Fannie/Freddie Report Growing Net Worth Under new Policy

Both of the government sponsored enterprises (GSEs) posted strong earnings for the fourth quarter of 2019 as well as for the entire year. They are now reporting growing net worth after achieving revisions in the 2012 version of their agreement with the U.S. Treasury that allows them to retain their earning.

Fannie Mae reported net income of $14.16 billion for 2019 and fourth quarter earnings of $4.37 billion. The annual income was down from $15.96 billion in 2018, but quarterly income was $402 million higher than that generated in Q3.

Net revenues for the year rose from 21.93 billion in 2018 to $22.14 billion last year and from $5.23 billion in the third quarter to $5.85 billion. Revenue includes both net interest income and income from fees. Interest income increased from $5.23 billion in the third quarter to $5.85 billion in the fourth primarily due to an increase in prepayments due to refinancing in the low interest rate environment.

The company said it provided more than $650 billion in liquidity to the mortgage markets in 2019 including about $207 billion in the fourth quarter. It acquired approximately 2.3 million in single-family mortgage loans and financed 726,000 units of multifamily housing during the year.

Single-family delinquencies declined by 76 basis points over the course of the year. The year-end delinquency rate was 0.66 percent. Serious multifamily delinquencies (over 60 days) declined from an 0.6 percent rate in the fourth quarter of 2018 to 0.4 percent.

Freddie Mac reported net income of $2.59 billion for the fourth quarter and $7.21 billion for the year. Comprehensive income was $2.45 billion and $7.79 billion respectively. The quarterly comprehensive income was $600 million higher than was reported in the third quarter while annual revenues were down $835 million.

As was the case with Fannie Mae, Freddie Mac said the quarterly increase was driven primarily by higher amortization as mortgage loans were prepaid through rate-driven refinances.

Net income was $4.57 billion for the quarter, including $3.36 billion in interest related income, up $948 million quarter over quarter. Net revenues for the year were down $1.49 billion to $14.08 billion as interest, guarantee fee and investment income all slipped from 2018 levels.

Freddie Mac provided about $558 billion in liquidity to the mortgage market, funding 1.8 million single family homes included 987,000 home purchases. The company also funded over 800,000 multifamily housing units.

Under the revised agreement with Treasury, neither Freddie Mac nor Fannie Mae will be required to sweep all of their quarterly revenues into the Treasury as a dividend. They will be allowed to retain dividends (although the amount will be added to their Treasury debt) until the net worth of each reaches a pre-set level, $25 billion in the case of Fannie Mae and $20.0 billion for Freddie Mac. As of December 31, 2019, Fannie Mae had accumulated net worth of $14.6 billion and Freddie Mac's was $9.1 billion.