GSE Earnings Sharply Decline as Higher Mortgage Rates Hinder Business
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae and Freddie Mac reported third quarter financial results last week, which reinforced how much the mortgage market has changed in the past year.
Both GSEs reported quarterly profits around 50 percent below what they booked in the same period a year ago.
Fannie Mae earned quarterly net income of $2.4 billion in the third months that ended September 30. That was down significantly from a year ago when it earned $4.8 billion. In its release, Fannie said the change in results was due to an increase in credit-related expense combined with a decrease in net interest income.
“Our third quarter results reflect the changing conditions in today’s housing market, and in this environment we continue to focus on being a stable pillar for the market, managing risk, and supporting renters and homeowners,” said Fannie Interim CEO David C. Benson.
Freddie Mac’s net income dropped 55 percent year-over-year, from $2.9 billion in the third quarter of 2021 to $1.3 billion in the most recent quarter. It attributed the results to a credit reserve build in its single-family segment.
The results for both firms demonstrated the plummeting volume of refinance activity caused by rising mortgage rates.
Fannie Mae acquired nearly $118 billion in single-family loans, down almost a third from $172.3 billion in the second quarter of this year. Third-quarter refinance volume was less than half of the second quarter, declining from $61.3 billion to $25.5 billion.
On a year-over-year basis, Freddie Mac’s new business activity fell 60 percent, from $299 billion to $121 billion. Whereas Freddie acquired $167 billion in new refinance loans in the third quarter last year, it only booked $23 billion in the most recent quarter.
Fannie’s new multifamily business volume was $15.9 billion during the third quarter of 2022, compared with $18.7 billion during the second quarter of 2022. Freddie’s multifamily new business activity was $14 billion, down 22 percent year-over-year, due to rising interest rates and increased competition.
The positive news is that despite the challenging conditions, both firms that remain in conservatorship turned a profit and added capital. Freddie boosted its net worth to $35.2 billion, nearly $10 billion more than at this time a year ago. Fannie’s net worth stands at $58.8 billion, up from $42.2 billion a year ago.
Due to the current capital framework in place, neither GSE was required to pay a dividend to the U.S. Treasury again this quarter.
Freddie provided $135 billion in liquidity to the mortgage market in the third quarter and boosted its mortgage portfolio to $3.4 trillion. Fannie provided $134 billion in liquidity and a mortgage portfolio of just over $4 trillion.
“In a dynamic economic environment, Freddie Mac continued to provide much-needed liquidity, stability, and affordability to the housing finance system,” said Freddie CEO Michael J. DeVito
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.
