GSEs Report Q4 and Full-year Financial Results for 2019
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae and Freddie Mac both saw declines in their annual net income last year, but both entities expressed that they had solid financial performances in 2019.
Fannie and Freddie reported their fourth quarter and full-year financial results for 2019 last week.
For the fourth quarter, Fannie Mae reported net income of just under $4.4 billion, up 10 percent from the previous quarter. Freddie Mac had $2.6 billion in fourth quarter net income, an increase of nearly 52 percent from the previous quarter.
For the full year, Fannie booked $14.2 billion of net income, which marked an 11 percent decline from 2018. Freddie saw its annual net income decline nearly 22 percent from 2018 ($9.2 billion) to 2019 ($7.2 billion).
Both entities cited the low interest rate environment for the drop in annual net income. Fannie said its decrease “was driven primarily by a shift to fair value losses in 2019 from fair value gains in 2018 as a result of decreasing interest rates throughout most of 2019.” Freddie attributed its lower income to “higher amortization expense due to an increase in loan prepayments combined with compressed yields due to the lower and flatter interest rate environment.”
Even with lower profits, both companies cited many positives for the year.
One of the key positives for both entities was the agreement reached in September 2019 with the Treasury Department and the Federal Housing Finance Agency that allows Fannie and Freddie to retain earnings until their net worths exceed a certain amount ($25 billion for Fannie and $20 billion for Freddie)
At the end of the year, Fannie’s net worth was $14.6 billion, while Freddie’s reached just over $9 billion.
Fannie Mae provided more than $650 billion in liquidity to the mortgage market in 2019, through the financing of more than 3 million home purchases, refinancings, and rental units. Freddie helped nearly 2.6 million families to own or rent a home in 2019 and provided nearly $558 billion in liquidity.
Fannie and Freddie also touted their ongoing capital management and risk reduction efforts in 2019. Fannie highlighted changes to both its single-family and multi-family risk transfer efforts. The company reported that it had reduced its conservatorship capital requirement for credit risk on multifamily loans acquired in 2018 by more than 70 percent.
Freddie’s report said its credit enhancement coverage of the single-family credit guarantee and multifamily mortgage portfolios increased in 2019.
“Our results further demonstrate the strength and earnings power of Fannie Mae’s business in 2019, including our ability to manage risk and generate solid returns in both our single-family and multifamily business lines,” said Fannie Mae CEO Hugh R. Frater. “We continue to fulfill our mission to provide liquidity to the mortgage market and meet our housing goals, while growing our guaranty fee income and managing expense growth. We begin 2020 with a net worth of $14.6 billion, thanks to strong retained earnings and prudent risk management.”
Said David M. Brickman, Freddie Mac CEO: “We invested in new ways to transfer risk, increased efficiency, and continued to position the company as the leader in housing. Importantly, last year we began the process of building equity to help us responsibly exit conservatorship.”
About the Author
As an NAMU® 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.
