Home Career Fannie Mae’s Q2 net income increased 6% compared to Q1

Fannie Mae’s Q2 net income increased 6% compared to Q1

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Fannie Mae’s 35% year-over-year second-quarter profit decline was slightly larger than Freddie Mac’sbut unlike its secondary market rival, quarterly profitability increased by 6% thanks to higher net interest income.

During the earnings call, David Benson, president and interim CEO, echoed the company’s sentiment a forecast of a modest recession starting in early 2023.

“As we noted last quarter, we do not expect a downturn to match the severity of 2008 in terms of its impact on housing or our financial results, primarily due to better overall credit quality, lower debt and the maturity of our loss mitigation practices ,” Benson said.

But he suggested that home prices in some parts of the US will begin to fall later this year.

“While Fannie Mae enters this period of uncertainty from a position of relative strength, we are fully aware that we are in a very unusual and potentially volatile global and economic environment,” Benson said. “So you have to expect the unexpected.”

Net income for the period ended June 30 was $4.65 billion, compared with $4.41 billion. in the first quarter and $7.15 billion a year ago.

The first-quarter profit was “primarily related to offsetting the impact of higher interest rates during the period,” said Krissa Halley, executive vice president and chief financial officer of Fannie Mae, during Fannie Mae’s earnings call.

Net interest income rose to $7.8 billion from $7.4 billion in the prior quarter. But it was down from $8.3 billion second quarter of 2021.

“Higher investment income as interest rates rose during the quarter contributed to the increase in net interest income from our retained portfolio and portfolio of other investments,” Hali explained. However, “net interest income from our guarantee portfolio decreased slightly due to lower net amortization income driven by lower refinancing activity, which was partially offset by higher base guarantee fee income.”

Given the economy’s impact on housing, Fannie Mae expects to report full-year net income this year that will be lower than a year ago, Halley said.

Fannie Mae ended the quarter with net equity of $56.4 billion, compared with $51.8 billion as of March 31 and $37.3 billion as of June 30, 2021.

Fannie Mae is $262 billion short of the amount of capital required to be fully capitalized under Structure of the Federal Housing Finance Agency, which is $10 billion more than three months before. “This improvement was primarily the result of an increase in our retained earnings and lower capital requirements due to single-family loan issuance and higher home prices,” Halley said.

She added that the above calculation did not include either the stated value of the principal preferred stock held by the US Treasury or Fannie Mae’s deferred tax assets, both of which are part of the net worth calculation.

Lending-related expenses were $251 million in the second quarter, compared to $201 million in the first quarter and lending-related income of $2.5 billion a year ago. This was partly driven by higher interest rates, but partly offset by rising house prices.

There is economic volatility which affect the duration of the portfolio. “Rising interest rates reduce the expected amount of prepayments and extend the expected life of previously modified loans that are considered distressed debt restructurings, as these loans are less likely to be refinanced,” Halley said.

Fannie Mae’s single-family segment reported net income of $3.89 billion, compared with $3.71 billion in the first quarter and $6.51 billion in the second quarter of 2021.

Purchase mortgages accounted for 64% of loans purchased by Fannie Mae in the quarter, the highest share since the first quarter of 2019, Halley noted.

The government-backed utility bought $172 billion in single-family mortgage loans, up from $239 billion in the previous quarter and $374 billion a year earlier. But quarter-on-quarter, it bought more loans used for home purchases, $111 billion versus $104 billion. In the second quarter of 2021, it purchased $130 billion of these loans.

At the same time, the average guarantee fee charged rose to 51.7 basis points in the second quarter, compared with 48.9 basis points three months earlier and 47.9 billion points a year ago.

Fannie Mae bought a larger share of mortgages with loan-to-value ratios of more than 80% to 34% in the second quarter from 24% in the first quarter, likely due to higher rates. Meanwhile, credit scores for purchased loans were relatively flat at 746 vs. 748.

But the share of loans considered to be seriously overdue increased to 81 basis points from 101 bps. March 31 and 208 b.p. June 30, 2021

The multifamily segment generated $767 million in net income in the second quarter, compared to $699 million in the first quarter and $645 million in the second quarter of 2021.

Purchased multifamily mortgage loans totaled $18.7 billion in the second quarter, compared to $16 billion in the first quarter. That’s about half of this year’s regulatory cap of $78 million for 2022.

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