10-Q: Fannie Mae Reports First Quarter 2024 Results, Net Income Rises to $4.3 Billion

Fannie Mae's net income increased to $4.3 billion in the first quarter of 2024, driven by a shift to benefit for credit losses and fair value gains.

Summary

• Fannie Mae's net income for the first quarter of 2024 increased by $548 million compared to the same period in 2023, reaching $4.3 billion.
• This increase was primarily due to a shift to a benefit for credit losses on single-family mortgage loans and an increase in fair value gains.
• Net revenues also saw an increase of $246 million in the first quarter of 2024 compared to the first quarter of 2023.
• The company provided $72.4 billion in liquidity to the mortgage market, enabling the financing of approximately 280,000 home purchases, refinancings, and rental units.
• Fannie Mae's net worth increased to $82.0 billion as of March 31, 2024, up from $77.7 billion at the end of 2023.
• Home prices grew by an estimated 1.7% in the first quarter of 2024, and Fannie Mae forecasts a 4.8% growth for the full year.
• The average 30-year fixed-rate mortgage rate at the end of the first quarter of 2024 increased compared to the end of the fourth quarter of 2023.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong financial results and improved credit metrics, but also acknowledges ongoing challenges and risks in the housing and mortgage markets. The sentiment is positive but tempered by the recognition of potential future headwinds.

Positives

• Fannie Mae experienced a significant increase in net income and net revenues in the first quarter of 2024.
• The company's net worth saw a substantial increase, indicating improved financial health.
• Fannie Mae continues to provide significant liquidity to the mortgage market, supporting home purchases and refinancings.
• The company's single-family serious delinquency rate remains low, suggesting strong credit performance.
• The company's multifamily serious delinquency rate decreased, indicating improved credit performance in that sector.

Negatives

• The average 30-year fixed-rate mortgage rate increased at the end of the first quarter of 2024 compared to the end of the fourth quarter of 2023.
• Multifamily market fundamentals remained subdued during the first quarter of 2024, with below-average rent growth.
• Multifamily property values declined 19% from the peak in July 2022 to March 2024.
• Fannie Mae had a $238 billion shortfall of available capital to the adjusted total capital requirement under the standardized approach of the enterprise regulatory capital framework as of March 31, 2024.

Risks

• The company's economic outlook is influenced by factors such as inflationary pressures, changes in monetary policy, and the risk of financial market disruptions.
• The credit performance of loans in the single-family guaranty book of business may decline compared to recent performance, potentially leading to higher delinquencies.
• Multifamily property values may continue to decline in the near term due to high interest rates and elevated new supply completions.
• The company faces increased competition for the acquisition of single-family mortgage assets.
• Fannie Mae is subject to a $270 billion debt limit under its senior preferred stock purchase agreement with Treasury.
• The company has a material weakness in its internal control over financial reporting due to limitations imposed by its conservatorship.

Future Outlook

Fannie Mae expects single-family housing starts to increase in 2024 compared to 2023 due to elevated demand for new single-family housing. The company also expects that GDP will continue to grow in 2024, but at a slower pace than in 2023. The unemployment rate is expected to continue to increase modestly in the remainder of 2024. Fannie Mae forecasts national home price growth of 4.8% for the full year of 2024. The company believes that vacancy levels could rise later this year to 6.25%, due to elevated new construction completions. They also believe that this new supply will keep rent growth at below average levels in 2024, in the 1.0% to 1.5% range.

Management Comments

• Management monitors the single-family serious delinquency rate as an indicator of potential future credit losses and loss mitigation activities.
• Management monitors the multifamily serious delinquency rate as an indicator of potential future credit losses and loss mitigation activities.
• Management uses the average charged guaranty fee on newly acquired conventional single-family loans as a metric to measure the amount earned as compensation for the credit risk managed and to assess return.

Industry Context

Fannie Mae's results reflect the current trends in the housing and mortgage markets, including increased interest rates, modest home price growth, and subdued multifamily market fundamentals. The company's performance is also influenced by its role as a government-sponsored enterprise and its conservatorship status, which imposes certain restrictions and requirements.

Comparison to Industry Standards

• Fannie Mae's single-family mortgage-related securities issuances were $65.1 billion for the first quarter of 2024, compared with $68.2 billion for the first quarter of 2023, indicating a slight decrease in issuance volume.
• The company faces increased competition for the acquisition of single-family mortgage assets in a market environment of low overall single-family loan origination volumes, which is a common challenge for all players in the secondary mortgage market.
• Fannie Mae's average charged guaranty fee on newly acquired conventional single-family loans, net of TCCA fees, increased in the first quarter of 2024 compared with the first quarter of 2023, primarily as a result of higher base guaranty fees charged on new acquisitions, which is a common strategy to increase revenue in a competitive market.
• The company's single-family serious delinquency rate as of March 31, 2024 remained near historically low levels, which is consistent with the overall trend of low delinquencies in the mortgage market.
• The multifamily serious delinquency rate decreased to 0.44% as of March 31, 2024, compared with 0.46% as of December 31, 2023, which is a positive sign for the multifamily sector, although the rate remains elevated compared to historical levels.

Legal Proceedings

• Fannie Mae is involved in ongoing litigation related to the senior preferred stock purchase agreements, with a recent jury verdict against the company.
• The company is also involved in other legal and regulatory proceedings that arise in the ordinary course of business.

Related Party Transactions

• Fannie Mae has related party transactions with Treasury, FHFA, and Freddie Mac, including payments of TCCA fees to Treasury and contributions to Common Securitization Solutions, LLC.

Stakeholder Impact

• Shareholders may be impacted by the ongoing litigation and the restrictions on dividend payments.
• Employees may be affected by the company's efforts to manage costs and improve efficiency.
• Customers, including lenders and borrowers, may be impacted by changes in Fannie Mae's underwriting and eligibility criteria.
• The company's actions to support the mortgage market and help borrowers, renters, lenders, and servicers may have a positive impact on these stakeholders.

Next Steps

• Fannie Mae will continue to monitor loan acquisitions and market conditions and make changes to its underwriting system as appropriate.
• The company will work toward implementing new credit score models and bi-merge credit reporting requirements by the fourth quarter of 2025.
• Fannie Mae will continue to monitor seniors housing loans in its multifamily guaranty book of business closely and actively manage loans that may be at risk of further deterioration or default.

Key Dates

Keywords

Fannie Mae, mortgage market, net income, credit risk, housing market, mortgage loans, guaranty fees, delinquency rates, interest rates, home prices, liquidity, conservatorship, credit risk transfer, MBS, multifamily, single-family