Fannie Mae’s profits decrease due to reduced credit-loss benefit – Asset Securitization Report

Fannie Mae’s latest earnings report showed a decrease in net income attributed to a lower credit-loss benefit, causing some uncertainty in the trading of its shares. The government-sponsored enterprise, responsible for a significant portion of single-family securities issued in the U.S. in the past year, reported $17 billion in net income for 2024, a slight decrease from the $17.4 billion earned in 2023.

During the earnings call, Chief Financial Officer Chryssa Halley highlighted a $186 million credit loss benefit for 2024, significantly lower than the previous year, resulting in the decline in net income. In contrast, Freddie Mac, Fannie Mae’s competitor, announced $11.9 billion in annual earnings recently, marking its strongest results since 2021.

The financial health of both GSEs, Fannie Mae and Freddie Mac, will be closely monitored by policymakers as they contemplate removing their governmental ties. The GSEs must demonstrate solid financials to facilitate their release and address the interests of investors and taxpayers entrenched in their government agreements.

Fannie Mae has been working to narrow the $146 billion deficit between its available risk-based capital and the regulatory minimum. Despite progress, there remains a substantial gap to bridge, particularly due to the exclusion of the $120.8 billion stated value of its senior preferred stock from regulatory capital calculations.

President Priscilla Almodovar noted the growth of Fannie Mae’s net worth to nearly $95 billion and the accumulation of nearly $37 billion in regulatory capital over the past two years. The enterprise recorded $4.1 billion in earnings for the quarter, with positive net income reported for 28 consecutive quarters.

Fannie Mae’s strong net revenues of $29 billion were attributed to robust guarantee fee income of $23 billion, offset by non-interest expenses of $9.8 billion, which remained relatively stable compared to the previous year. However, the possible alteration of Fannie and Freddie’s guarantees, particularly as they pertain to their governmental ties, has fueled discussions on the handling of their release from conservatorship.

In terms of loan acquisitions, Fannie Mae procured around 778,000 single-family home-purchase mortgages in the previous year, with a substantial portion allocated to first-time buyers. Additionally, it financed approximately 207,000 refinance loans and funded 420,000 home loans with five or more units.

Looking ahead, Fannie Mae must navigate potential risks and challenges, including loan performance uncertainties and market limitations. Executives emphasized the organization’s vigilance in managing fraud risks within its portfolio of business. Despite market fluctuations, Fannie Mae’s stock was trading near $6.75 per share shortly after the earnings call, trending toward the higher end of its trading range between $6.70 and $6.90.