10-K: Fannie Mae Reports Lower 2025 Net Income Amid Credit Loss Shift

Fannie Mae's 2025 net income decreased to $14.4 billion, primarily due to a shift from credit loss benefits to provisions, despite an increase in net worth.

Summary

• Net income for 2025 was $14.4 billion, a decrease of $2.6 billion from $17.0 billion in 2024.
• Net revenues totaled $29.0 billion in 2025, down $105 million from $29.1 billion in 2024.
• A provision for credit losses of $1.6 billion was recorded in 2025, a significant shift from a $186 million benefit in 2024.
• Non-interest expense decreased by $141 million to $9.6 billion in 2025.
• Net worth increased by $14.4 billion in 2025, reaching $109.0 billion as of December 31, 2025.
• The company remains significantly undercapitalized, with a $22 billion deficit in available capital and a $215 billion shortfall to its total capital requirement including buffers as of December 31, 2025.
• Fannie Mae met 5 out of 6 single-family housing goals in 2024 and believes it met all 2025 single-family and multifamily housing goals.
• A material weakness in disclosure controls and procedures persists due to the conservatorship structure, leading to an adverse opinion from the independent auditor on internal control over financial reporting.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a challenging period for Fannie Mae, marked by declining net income and a significant shift to credit loss provisions. While net worth increased and housing goals were largely met, the persistent undercapitalization and material weakness in internal controls present substantial ongoing concerns for investors.

Positives

• Net worth increased by $14.4 billion in 2025, reaching $109.0 billion.
• Non-interest expense decreased by $141 million in 2025, primarily due to reductions in other and administrative expenses.
• The company met 5 out of 6 single-family housing goals in 2024 and believes it met all 2025 single-family and multifamily housing goals.
• Complied with 2024 Duty-to-Serve requirements and believes it met 2025 obligations.
• Multifamily business volumes increased by 34% in 2025, reflecting increased market activity.
• The percentage of multifamily loans with a current DSCR below 1.0 decreased to 4% as of December 31, 2025, from 6% in 2024, indicating improved credit quality for this segment.

Negatives

• Net income decreased by $2.6 billion in 2025 compared to 2024, primarily due to a shift to a provision for credit losses and decreased fair value gains.
• A $1.6 billion provision for credit losses was recorded in 2025, a significant reversal from a $186 million benefit in 2024.
• Net revenues decreased by $105 million in 2025, mainly due to a $708 million decrease in net interest income from portfolios.
• The company remains significantly undercapitalized, with a $22 billion deficit in available capital and a $215 billion shortfall to its total capital requirement including buffers as of December 31, 2025.
• A material weakness in disclosure controls and procedures exists, which is not expected to be remediated while under conservatorship, leading to an adverse opinion on internal control over financial reporting.
• The conservatorship and agreements with Treasury adversely affect common and preferred stockholders, including suspended voting rights and dividends (except senior preferred).
• The senior preferred stock liquidation preference increased to $227.0 billion as of December 31, 2025, and is expected to reach $230.5 billion by March 31, 2026, reducing potential returns for other equity holders.
• CEO compensation is limited to $600,000 base salary, and senior executives are prohibited from receiving bonuses, which may hinder talent retention and recruitment.
• The company faces higher capital requirements relative to its primary competitor, Freddie Mac, which could negatively affect its competitive position and profitability.

Risks

• The future of the company is uncertain, including its form, market role, government support, and the timing/conditions of exiting conservatorship.
• Significant undercapitalization and potential inability to fully satisfy regulatory capital requirements.
• FHFA, as conservator, controls business activities and may require actions that reduce profitability, increase risk, or create capital challenges.
• Business activities are significantly affected by the senior preferred stock purchase agreement with Treasury.
• The regulator is authorized or required to place the company into receivership under specified conditions, which would result in liquidation and potential loss for stockholders and creditors.
• Inability to retain and recruit well-qualified executives and other employees due to conservatorship, uncertainty, and compensation limits.
• Higher capital requirements relative to primary competitor (Freddie Mac) could negatively affect business.
• Pursuing housing mission requirements may materially adversely affect business, results of operations, and financial condition.
• The conservatorship and agreements with Treasury adversely affect common and preferred stockholders.
• Liquidity and market value of MBS could be materially adversely affected by secondary mortgage market or UMBS market developments, or legislative/regulatory changes.
• Issuance of UMBS and structured securities backed by Freddie Mac-issued securities exposes the company to operational and counterparty credit risk.
• Reliance on U.S. FinTech and the common securitization platform exposes the company to significant third-party risk.
• Limited ability to diversify business due to charter act and regulatory limitations.
• An active trading market in equity securities may cease to exist, adversely affecting market price and liquidity.
• May incur significant future provisions for credit losses and write-offs on loans, materially affecting results.
• Credit enhancements provide only limited protection against potential future credit losses and increase expenses.
• Material losses may occur if borrowers suffer property damage from hazards with insufficient insurance.
• Major natural or other disasters could materially increase provision for credit losses and write-offs.
• One or more institutional counterparties may fail to fulfill contractual obligations, resulting in financial losses and business disruption.
• Financial condition and results may be materially adversely affected if mortgage servicers fail to perform obligations.
• Losses may be incurred if claims under mortgage insurance policies are not paid in full or at all.
• Additional financial losses due to mortgage fraud, potentially exacerbated by artificial intelligence technologies.
• Failure in operational systems or infrastructure, or those of third parties, could cause material business disruptions and harm reputation.
• A cyber attack or other cybersecurity incident could have a material adverse impact on business, financial results, and condition.
• Material weaknesses in internal control over financial reporting could result in errors in reported results or incomplete/inaccurate disclosures.
• Failure of models to produce reliable outputs may materially adversely affect risk management and business decisions, and create regulatory/reputational risk.
• Limitations on ability to access debt capital markets could materially adversely affect funding operations; liquidity contingency plans may be difficult to execute during a crisis.
• Decrease in credit ratings on senior unsecured debt could increase borrowing costs and affect debt issuance, and require additional collateral for derivatives.
• Changes in interest rates or limitations on ability to manage interest-rate risk successfully could materially adversely affect financial results and condition.
• Changes in spreads could materially impact the fair value of net assets, results of operations, and net worth.
• Business and financial results are affected by general economic conditions, including home prices and employment trends; volatility in political conditions also can significantly affect economic conditions and financial markets.
• Regulatory changes in the financial services industry and shifts in monetary policy may negatively impact business.
• Legislative, regulatory, or judicial actions, and changes in interpretations of laws/regulations/accounting standards, could negatively impact business.
• Risk of non-compliance with legal and regulatory obligations could have a material adverse impact.
• Business and financial results could be materially adversely affected by legal or regulatory proceedings.
• Accounting policies and methods require management judgments and estimates about inherently uncertain matters, relying on models, which may be inaccurate.

Future Outlook

Fannie Mae expects home price growth of 2.4% nationally in 2026 and anticipates the unemployment rate to remain relatively stable. Total U.S. single-family mortgage originations are forecast to increase by approximately 24% in 2026, driven by a significant increase in refinance originations. The company expects to continue increasing its holdings of agency MBS, funded primarily through cash from operations, asset sales, and debt issuance. Multifamily vacancy rates are expected to decline slightly by the end of 2026, with cumulative rent growth below 2.0% for the year. The compliance date for the enterprise regulatory capital framework's minimum capital and buffer requirements is the termination of conservatorship or a later FHFA-ordered date, with advanced approaches requirements effective January 2028 or later. The material weakness in disclosure controls is not expected to be remediated while in conservatorship.

Management Comments

• We believe many employees and potential recruits are attracted by our mission and the compelling nature of our work, despite our uncertain future and limitations on the compensation we can offer.
• Our conservator has not made us aware of any plans that would fundamentally change our business model or make any other significant changes that would affect our ability to continue as a going concern.
• Management navigated macroeconomic and market-driven challenges well and delivered overall strong results in 2025, including significant and durable cost reductions that exceeded targets and effective headcount management.
• Management delivered significant and durable cost reductions that exceeded targets and effectively managed headcount by both accelerating reductions in force intended to modernize and upgrade its workforce while simultaneously limiting voluntary attrition.
• Management also outperformed against metrics relating to the safety and soundness Board of Directors goal and advanced critical technology and data capability initiatives.
• The cap on our CEO compensation under the Equity in Government Compensation Act of 2015 continues to be a risk factor for the company.

Industry Context

StockSavvy.ai notes that Fannie Mae operates within a U.S. residential mortgage market experiencing moderate shifts. While single-family home price growth is expected to slow, a significant increase in refinance originations is anticipated for 2026, suggesting a responsive market to interest rate changes. The multifamily sector faces slowing rental demand and elevated new supply, leading to increased vacancy rates and declining property values, which could impact loan performance. Fannie Mae's continued conservatorship and capital shortfalls place it in a unique position compared to fully private competitors, limiting its strategic flexibility and ability to attract talent, despite its dominant market share in mortgage debt outstanding. The ongoing alignment efforts with Freddie Mac for UMBS aim to maintain market fungibility, but competitive pressures and regulatory directives remain key influences.

Comparison to Industry Standards

• Fannie Mae's estimated 24% share of total U.S. residential mortgage debt outstanding as of September 30, 2025, (down from 25% in 2024) indicates its continued position as a leading guarantor in the U.S. residential mortgage market, surpassing competitors like Freddie Mac, FHA, and VA.
• The national multifamily vacancy rate of 6.7% as of December 31, 2025, is above the estimated 15-year average of 5.1%, suggesting a softening in the multifamily rental market compared to historical norms.
• Multifamily property values declined 19% from their peak in Q2 2022 to Q4 2025, and 1% year-over-year from Q4 2024 to Q4 2025, indicating a challenging valuation environment compared to recent market highs.
• Fannie Mae's 2025 multifamily property sales volume of $165 billion, while higher than 2024's $151 billion, is closer to the 2015-2019 annual average of $169 billion, suggesting a return to pre-pandemic activity levels rather than exceptional growth.
• The U.S. weekly average 30-year fixed-rate mortgage rate of 6.15% at the end of 2025, while lower than the 6.85% at the end of 2024, remains higher than the interest rates of most outstanding single-family loans, limiting widespread refinancing incentives compared to periods of lower rates.

Management Changes

Corporate Governance

Legal Proceedings

• Senior Preferred Stock Purchase Agreements Litigation: A jury awarded $299.4 million to Fannie Mae preferred stockholders on August 14, 2023, with prejudgment interest of $199.7 million 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. Total accrual for this matter from 2023 through 2025 is $545 million.
• Western District of Michigan (Rop et al. v. FHFA et al.): The U.S. Court of Appeals for the Sixth Circuit reversed the dismissal of this case and remanded it to the district court. The Supreme Court denied review on June 12, 2023. 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.
• U.S. Court of Federal Claims (Fisher et al. v. United States of America): This case, alleging a taking of Fannie Mae's property, 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. The case is now concluded.

Related Party Transactions

• Treasury: Paid $3.424 billion in TCCA fees in 2025, representing a 10 basis point increase in guaranty fees on single-family mortgages, as extended by the Infrastructure Investment and Jobs Act until October 1, 2032.
• Treasury: Recognized $60 million payable to Treasury's Capital Magnet Fund in 2025 as part of affordable housing allocations, based on new business purchases.
• FHFA: Paid $154 million in FHFA annual assessments in 2025 to cover a portion of its costs and expenses.
• U.S. FinTech (jointly owned with Freddie Mac): Contributed $82 million to U.S. FinTech in 2025 for its operations, which include providing single-family mortgage securitization services.
• Freddie Mac: Fannie Mae has counterparty credit risk exposure from resecuritizing Freddie Mac-issued securities, with $184.3 billion in Freddie Mac securities backing Fannie Mae-issued structured securities as of December 31, 2025. An indemnification agreement with Freddie Mac is in place.

Stakeholder Impact

• Shareholders (Common and Preferred): Voting rights are suspended, and dividends (except senior preferred) are eliminated due to conservatorship. The Treasury's warrant for 79.9% of common stock poses significant dilution risk. The increasing liquidation preference of the senior preferred stock further limits potential returns.
• Employees: The conservatorship and compensation limits (e.g., CEO salary cap, no bonuses for senior executives) create challenges for attracting and retaining qualified talent, potentially impacting operational effectiveness. Workforce reductions occurred in 2025, with headcount declining from 8,200 to 7,000.
• Customers (Lenders and Borrowers): Fannie Mae continues to provide liquidity to the mortgage market, enabling financing for home purchases, refinancings, and rental units. Efforts to meet housing goals and Duty to Serve underserved markets aim to promote access to mortgage credit, particularly for lowand moderate-income families. However, changes in pricing and eligibility standards due to capital requirements or competitive pressures could impact lenders.
• U.S. Department of Treasury: Continues to receive significant dividends from senior preferred stock and TCCA fees. Maintains a substantial funding commitment to Fannie Mae, indicating ongoing financial support and control.
• FHFA (Conservator and Regulator): Exercises broad authority over Fannie Mae's business, operations, and corporate governance, including setting executive compensation and capital requirements. The material weakness in internal controls highlights the unique oversight challenges.
• Mortgage Insurers and Other Counterparties: Reliance on these parties for credit enhancements and services exposes Fannie Mae to counterparty credit risk. Changes in financial strength or performance of these parties could lead to financial losses for Fannie Mae.
• U.S. Housing Market: Fannie Mae's activities, including mortgage acquisitions and securitizations, are crucial for providing stability and liquidity to both single-family and multifamily segments. Its mission-driven activities support affordable housing and underserved markets.

Next Steps

• FHFA will make a final determination regarding 2025 single-family housing goals performance later in 2026.
• FHFA will determine performance with respect to 2025 Duty-to-Serve obligations in 2026.
• The company expects to pay $171 million in affordable housing allocations to HUD and Treasury funds in 2026.
• The company expects to continue increasing its holdings of agency MBS, funded primarily through cash from business operations, sale of corporate liquidity portfolio assets, and issuance of additional debt securities.
• Implementation efforts are underway for FICO Score 10T credit score model, with historical data publication and adoption expected at a later date.
• The company will update its Selling Guide and make additional changes to support the adoption of VantageScore 4.0 in the near future.
• The updated PMIERs standards are expected to be implemented through a 24-month phased-in approach, with a fully effective date of September 30, 2026.
• The compliance date for the enterprise regulatory capital framework's minimum capital requirements will be the date of termination of conservatorship or such later date as FHFA may order.
• The compliance date for the buffer requirements will be the date of termination of conservatorship.
• The compliance date for the advanced approaches requirements is January 2028 or such later date as FHFA may order.
• Briefing on the appeal for the Senior Preferred Stock Purchase Agreements Litigation is currently scheduled to conclude in February 2026.

Key Dates

Recommendation

Fannie Mae's financial results for 2025 show a decline in net income and a significant shift to credit loss provisions, indicating a challenging operating environment. While the company's net worth increased and it continues to fulfill its mission, the persistent undercapitalization, ongoing conservatorship, and the material weakness in internal controls present substantial risks and limit its strategic flexibility. The legal proceedings and the Treasury's significant control over equity and dividends further complicate the investment thesis. Given the current constraints and uncertainties, a 'hold' recommendation is appropriate, as the stock's performance is heavily influenced by external regulatory and governmental factors rather than traditional market dynamics, making significant upside or downside difficult to predict based solely on operational performance.

Keywords

Fannie Mae, FNMA, SEC Filing, 10-K, Mortgage Finance, Housing Market, Conservatorship, Credit Risk, Mortgage-Backed Securities, MBS, FHFA, Treasury, Capital Requirements, Net Income, Net Worth, Credit Losses, Corporate Governance, Risk Management, Single-Family, Multifamily, Housing Goals, Executive Compensation, Internal Controls, Cybersecurity, Legal Proceedings, UMBS