Fannie Mae reports spectacular capital gains in Q3

Fannie Mae in Q3 more than doubled her net worth compared to one year ago, which is likely to be useful as it potentially faces new regulatory objectives and the need to disclose more on its capital situation.

The net worth of the government-sponsored company for the quarter was $ 42.2 billion, up from $ 20.7 billion in the same period last year and $ 37.3 billion during the previous three months. (Fannie switched to hedge accounting in 2021, therefore, previous results should only be considered roughly comparable as they were calculated using a different methodology aimed at smoothing quarterly fluctuations in market value that otherwise have an impact. disparities in the securities and financial instruments used to manage their risks.)

Fannie’s net worth gain follows a record year for the mortgage industry that can be hard to match, though some forecasts – like those of Fannie’s competitor, Freddie Mac – are relatively optimistic. Fannie’s latest earnings figures remained strong but moved closer to historical norms. It said third quarter net profit of $ 4.8 billion, up from $ 4.2 billion a year earlier and $ 7.2 billion in the second quarter of this year.

“When we met last quarter to share our strong second quarter results, I noted that they were against the backdrop of a very strong economy, consistently low interest rates and strong growth in house prices. We saw these trends continue into the third quarter, but to a lesser extent, ”said David Benson, Interim President and CFO of Fannie, on his earnings conference call.

Refinancing loans purchased by Fannie have declined, but home buying mortgages have picked up, in line with the typical change in the market cycle when rates rise.

“Looking at more recent experience, refinancing acquisitions were at their lowest since Q1 2020, as many borrowers have already taken advantage of the low interest rate environment to refinance,” Benson said. He noted that the third quarter purchase share of 39% was the highest since the third quarter of 2019. Single-family home assemblies purchased by Fannie in the third quarter of this year totaled $ 115.4 billion.

The annual performance plan targets for fiscal 2022 that Fannie and Freddie’s regulator released on the same day that their earnings make it clear that they aim to maintain their financial strength while ensuring that they will always be available for provide access to affordable products and fair loan,

In addition to measures consistent with the new goals of diversity and inclusion, equity and affordable housing, the FHFA will publish a proposed rule on corporate capital planning. Performance targets also contain a plan for collecting feedback and evaluating a newly implemented performance management system.

Fannie Mae shares the belief of Sandra Thompson, Acting Director of FHFA, “that our mission of housing, sustainability, safety and soundness are inextricably linked,” Fannie CEO Hugh Frater said at the call for results.

Fannie plans to step up efforts to identify borrowers who might benefit from her low down payment HomeReady loans, but who may be excluded from traditional underwriting, Frater said, noting that this could be a key part of the new plan. GSE fair housing financing, which is due at the end of the year.

“We actively listen to stakeholders as we prepare our plans, and the listening sessions organized by the FHFA will help strengthen our plans,” said Frater. “The FHFA’s leadership on the issue of home equity is consistent with its actions in a wide range of areas. These include an expansion of our investment activity in the low-income housing tax credit as well as the recent FHFA decision to allow office assessments on numerous acquisitions of purchase loans in 2022.

Fannie and Freddie’s goals of ensuring their own financial strength while remaining able to support affordable housing programs are broadly complementary, but the two initiatives can go against the grain and are likely to create challenges over the course of the year. coming year.

For example, the decision to reduce unfavorable market fees charged for refinancings expanded access to credit for underserved borrowers with income constraints, but also reduced some of their income and capital building potential. GSE. Fannie’s guarantee commission income declined as a result of the move, but the reduction was relatively small, Benson said.

“There was a slight decrease in average overhead charged for Q3 acquisitions compared to the previous quarter, from 47.9 basis points to 47.3,” Benson noted. “The elimination of unfavorable refinancing costs from the market has contributed to the decrease in costs.

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