10-Q: Fannie Mae Q3 2025 Net Income Falls Amid Credit Provisions

Fannie Mae reported a decline in net income for the third quarter and first nine months of 2025, primarily due to increased credit loss provisions and reduced fair value gains.

Summary

• Net income for the third quarter of 2025 was $3.9 billion, a decrease of $185 million compared to the third quarter of 2024.
• Net income for the first nine months of 2025 was $10.8 billion, a decrease of $2.0 billion compared to the first nine months of 2024.
• A provision for credit losses of $338 million was recorded in Q3 2025, a significant shift from a $27 million benefit in Q3 2024.
• Year-to-date provision for credit losses was $1.3 billion, compared to a $507 million benefit in the first nine months of 2024.
• Net worth increased by $10.8 billion in the first nine months of 2025, reaching $105.5 billion as of September 30, 2025.
• The aggregate liquidation preference of the senior preferred stock increased to $223.1 billion as of September 30, 2025, and is projected to reach $227.0 billion by December 31, 2025.
• The company continues to operate under conservatorship by the Federal Housing Finance Agency (FHFA) since 2008.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to significant year-over-year declines in net income and a substantial shift from credit benefits to credit provisions. While net worth increased and some operational metrics show improvement (e.g., single-family originations), persistent capital shortfalls, ongoing conservatorship, and increasing multifamily delinquencies present notable headwinds and uncertainties.

Positives

• Net worth increased by $10.8 billion in the first nine months of 2025, reaching $105.5 billion.
• Administrative expenses decreased to $819 million in Q3 2025 from $884 million in Q3 2024, primarily due to fewer employees and contractors.
• Other income (expense), net, shifted to an income of $25 million in Q3 2025 from an expense of $136 million in Q3 2024, driven by debt extinguishment gains and reduced single-family foreclosed property expense.
• The FHFA doubled the annual Low Income Housing Tax Credit (LIHTC) investment limit from $1 billion to $2 billion on August 5, 2025, enhancing support for affordable housing.
• Single-family mortgage market originations increased to an estimated $493 billion in Q3 2025 from $456 billion in Q3 2024.
• Forecasted total U.S. single-family mortgage market originations for 2025 are expected to increase by approximately 11% to $1.88 trillion from $1.70 trillion in 2024.
• Multifamily business volumes increased by 47% in the first nine months of 2025 compared to the same period in 2024.

Negatives

• Net income decreased by $185 million in Q3 2025 and $2.0 billion in the first nine months of 2025 compared to the prior year periods.
• A significant shift from a benefit for credit losses to a provision for credit losses ($365 million in Q3 2025, $1.8 billion YTD 2025) negatively impacted profitability.
• Fair value gains decreased by $39 million in Q3 2025 and $632 million in the first nine months of 2025 compared to the prior year periods.
• Multifamily provision for credit losses was primarily driven by increased delinquencies and write-downs of seriously delinquent loans.
• The national multifamily vacancy rate remained steady at 6.5% as of September 30, 2025, up from the 15-year average of 5.1%.
• Effective multifamily rents decreased approximately 0.1% during Q3 2025.
• Multifamily property values declined 19% from their peak in Q2 2022 to Q3 2025, and decreased less than 1% from Q2 to Q3 2025.
• The multifamily serious delinquency rate increased to 0.68% as of September 30, 2025, from 0.57% as of December 31, 2024.
• The company had a $215 billion shortfall to its risk-based adjusted total capital requirement including buffers as of September 30, 2025.

Risks

• The company's conservatorship status and agreements with the U.S. Department of the Treasury significantly restrict business activities and stockholder rights, and its future remains uncertain.
• A material weakness in internal control over financial reporting persists due to the structural limitations imposed by the conservatorship, making it difficult to ensure complete and accurate disclosure of information known to FHFA.
• The allowance for loan losses is highly sensitive to macroeconomic variables, particularly home price growth rates, interest rates, net operating income, and property valuations, which are subject to significant inherent uncertainty.
• The ongoing Senior Preferred Stock Purchase Agreements Litigation poses a financial risk, with a jury verdict of $299.4 million in damages and $199.7 million in prejudgment interest, plus accruing post-judgment interest at 5.01%.
• The acquisition of Mr. Cooper Group by Rocket Companies, Inc. will increase single-family servicing concentration, potentially impacting institutional counterparty credit risk.
• The impact of trade, fiscal, regulatory, and immigration policies, as well as any ongoing government shutdown, could materially affect interest rates, home price growth, and economic growth.
• The company is exposed to market risk, including interest-rate risk and spread risk, which can cause earnings volatility due to differing accounting treatments and factors not fully hedged.

Future Outlook

The company forecasts national home price growth of 2.5% for the full year 2025, expecting a decrease in the fourth quarter. U.S. GDP is expected to grow at a slower pace in 2025 compared to 2024, with the unemployment rate projected to increase modestly in Q4 2025. Multifamily vacancy rates are expected to remain generally steady for the remainder of 2025, with cumulative rent growth below 2.0% for the year. Between 450,000 and 500,000 multifamily rental units are expected to be completed in 2025. The revised approach to REO property repairs is anticipated to result in lower costs. The company will update its Selling Guide and make additional changes to support the adoption of VantageScore 4.0 credit score models in the near future.

Management Comments

• Our single-family provision for credit losses was primarily driven by provision associated with loans that we acquired during the period, which primarily consisted of purchase loans.
• Our multifamily provision for credit losses was primarily driven by increased delinquencies.
• Lower net interest income from portfolios in the third quarter and first nine months of 2025 compared with the third quarter and first nine months of 2024 was primarily driven by higher average rates on our long-term funding debt as we issued debt in a higher-interest rate environment relative to maturing long-term debt.
• Higher base guaranty fee income in the third quarter and first nine months of 2025 compared with the third quarter and first nine months of 2024 was primarily driven by higher average guaranty fees on recent single-family acquisitions.
• Our single-family serious delinquency rate as of September 30, 2025 increased by 2 basis points compared with September 30, 2024, but decreased by 2 basis points compared with December 31, 2024, and continues to remain low relative to historic levels.
• The increase in our single-family serious delinquency rate compared to the prior-year period was primarily driven by higher delinquencies in states impacted by hurricane activity toward the end of 2024, which reached its peak in the first quarter of 2025.
• Our multifamily serious delinquency rate increased to 0.68% as of September 30, 2025, compared with 0.57% as of December 31, 2024. The new entrants to the seriously delinquent population consisted primarily of fixed-rate conventional loans.

Industry Context

The U.S. housing market shows mixed signals, with single-family mortgage originations increasing and a forecast for overall market growth in 2025, driven partly by refinance activity as mortgage rates slightly decline. However, housing affordability constraints and limited supply continue to pressure purchase loan volumes. The multifamily market faces headwinds with slowing rental demand, elevated new supply, and declining property valuations, although vacancy rates are expected to stabilize. The broader economic outlook anticipates slower GDP growth and a modest increase in unemployment, which could impact housing demand and credit performance. The doubling of the LIHTC investment limit by FHFA indicates a continued focus on affordable housing initiatives within the industry.

Comparison to Industry Standards

• Fannie Mae's estimated 25% share of single-family mortgage debt outstanding and 21% of multifamily mortgage debt outstanding as of June 30, 2025, positions it as a leading source of financing in the U.S. residential mortgage market, comparable to its government-sponsored enterprise (GSE) peer, Freddie Mac.
• The company's credit ratings (S&P AA+, Moody's Aa1, Fitch AA+) remain strong, although Moody's downgraded its rating following a similar downgrade of the U.S. Government, reflecting the close linkage and implicit government support, which is a unique characteristic for a GSE compared to private financial institutions.
• The national multifamily vacancy rate of 6.5% as of September 30, 2025, is higher than the estimated average national multifamily vacancy rate of approximately 5.1% over the last 15 years, indicating a softening in the multifamily rental market compared to historical performance.
• Multifamily property values declined 19% from their peak in Q2 2022 to Q3 2025, a significant correction that contrasts with the more stable or appreciating trends seen in some other commercial real estate sectors or earlier periods in the housing market cycle.
• The company's capital shortfall of $215 billion (with buffers) under the enterprise regulatory capital framework highlights its unique position under conservatorship, where it does not yet meet the capital requirements that would typically apply to a fully private financial institution of its size and risk profile.

Management Changes

Corporate Governance

Legal Proceedings

• Senior Preferred Stock Purchase Agreements Litigation: A jury verdict on August 14, 2023, awarded $299.4 million to Fannie Mae preferred stockholders, with an additional $199.7 million in prejudgment interest set on March 20, 2024. Defendants appealed on April 11, 2025, and plaintiffs cross-appealed on April 25, 2025. Post-judgment interest accrues at 5.01% from March 20, 2024. Briefing is scheduled to conclude in February 2026.
• Rop et al. v. FHFA et al.: This case was remanded to the district court. FHFA and Treasury filed motions for judgment on the pleadings in March 2025, and plaintiffs filed a motion to amend their complaint in April 2025.
• Wazee Street Opportunities Fund IV L.P. et al. v. FHFA et al.: The district court dismissed this case on April 30, 2025, and it concluded on June 30, 2025.
• Fisher et al. v. United States of America: This case was dismissed with prejudice on September 1, 2023, and the dismissal was affirmed by the U.S. Court of Appeals for the Federal Circuit on August 12, 2025.

Related Party Transactions

• Fannie Mae operates under conservatorship by the FHFA and relies on financial support from the U.S. Department of the Treasury (Treasury) through its senior preferred stock purchase agreement. The company pays TCCA fees to Treasury and is subject to FHFA assessments and affordable housing allocations to HUD and Treasury funds.
• The senior preferred stock held by Treasury has an aggregate liquidation preference that increased to $223.1 billion as of September 30, 2025, and will further increase to $227.0 billion as of December 31, 2025, based on Fannie Mae's net worth increases.

Stakeholder Impact

• Shareholders (common and preferred, excluding Treasury) face continued uncertainty regarding the company's future, limited rights, and no dividend payments due to conservatorship and the terms of the senior preferred stock.
• The increase in the senior preferred stock's liquidation preference further dilutes the potential recovery for other stockholders upon any future recapitalization or exit from conservatorship.
• Employees and contractors experienced a decrease in numbers, contributing to lower administrative expenses.
• Lenders benefit from Fannie Mae's continued liquidity provision to the mortgage market and the ongoing support for new credit score models (VantageScore 4.0).
• Borrowers and renters benefit from Fannie Mae's role in promoting access to mortgage credit and its increased investment limit in Low Income Housing Tax Credit (LIHTC) partnerships for affordable housing.
• The U.S. government (Treasury and FHFA) maintains significant control and financial interest in Fannie Mae through the conservatorship and the senior preferred stock agreement.

Next Steps

• FHFA will establish housing goals for Fannie Mae and Freddie Mac for 2026 through 2028, with comments on the proposed rule due in November 2025.
• Fannie Mae will update its Selling Guide and make additional changes to support the adoption of VantageScore 4.0 credit score models in the near future.
• The company expects to pay affordable housing allocations in 2026 based on its new business purchases in the fourth quarter of 2025.
• Briefing on the appeal for the Senior Preferred Stock Purchase Agreements Litigation is scheduled to conclude in February 2026.

Key Dates

Recommendation

Fannie Mae's financial performance shows a notable decline in net income and a significant increase in credit loss provisions year-over-year, indicating deteriorating profitability. The company remains under conservatorship, with its future uncertain and common/preferred stockholders having severely limited rights and no dividends. The substantial capital shortfall persists, and the liquidation preference of the senior preferred stock continues to grow, further diminishing potential value for other equity holders. While some operational aspects like single-family originations show growth, the overall financial and structural challenges, coupled with ongoing litigation, make the stock highly speculative with significant downside risk for traditional investors. The stock trades on the OTC market, reflecting its non-standard investment profile. A seasoned investor would likely view the current situation as unfavorable for long-term capital appreciation and recommend selling existing positions.

Keywords

Fannie Mae, Mortgage, Housing, SEC Filing, 10-Q, Financial Results, Credit Losses, Net Income, Conservatorship, Mortgage-Backed Securities, Housing Market, Real Estate, Financial Services, Risk Management, Capital Requirements