Fannie and Freddie Report Lower Income in First Quarter
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae and Freddie Mac released quarterly earnings last week that showed the extent of the impact that the COVID-19 pandemic had in a short amount of time. Both GSEs expect the pandemic to negatively affect financial performance for the remainder of the year.
Fannie Mae reported comprehensive income of $476 million for the first quarter of 2020. That was down from $4.3 billion in the fourth quarter of 2019. Compared with the first quarter of 2019, Fannie’s comprehensive income plummeted 80 percent.
Fannie said the decrease in income was due primarily to a shift from credit-related income to credit-related expense caused by the COVID-19 outbreak.
Freddie Mac’s income similarly dropped in the first quarter to $622 million. That was down significantly from $2.5 billion in the previous quarter. On a year-over-year basis, comprehensive income was down 63 percent.
Freddie said its drop in income was also due to higher credit-related expense. It also attributed the results to losses on single-family loans held in inventory due to effects from the pandemic and other factors.
Fannie’s net revenues fell slightly quarter-to-quarter from $6 billion to $5.7 billion. However, the first quarter revenues in 2020 were higher than the $4.9 billion in 2019.
Freddie’s first quarter 2020 net revenue was $2.4 billion, down from $4.6 billion in the fourth quarter of 2019 and also lower than first quarter 2019 revenue of $2.9 billion.
Fannie provided $204.6 billion in liquidity to the mortgage market $14.1 billion in multifamily financing in the first quarter.
Freddie reported new business activity of $138 billion for single-family and $10 billion for multifamily. The single-family and multifamily guarantee portfolios grew 6 percent and 13 percent, respectively, year over year.
Both GSEs said they expect the impact of the COVID-19 national emergency to continue to negatively affect their financial results and contribute to lower net income in 2020 than in 2019.
Fannie said that, due to disruptions in the market and economic uncertainty, the company does not anticipate engaging in back-end credit-risk transfer transactions in the near term.
The week before Fannie and Freddie reported quarterly results, the Federal Housing Finance Agency (FHFA) approved the ability of the GSEs to purchase single-family mortgages in forbearance, provided they meet other eligibility requirements.
That same week, FHFA also announced a four-month advance obligation limit for loans in forbearance. Once a servicer has advanced four months of missed payments on a loan, it will have no further obligation to advance scheduled payments. This applies to all enterprise servicers regardless of type or size.
Fannie reported that it had increased its allowance for loan losses to reflect the losses it currently expects to incur, including $4.1 billion as a result of the economic disruption caused by the COVID-19 outbreak, which are reflected in its $2.7 billion of credit-related expenses for the quarter. Fannie estimates that approximately 7 percent of its single-family loans were in a forbearance plan as of April 30. The company expects the number of loans in forbearance plans will continue to increase.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
