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Freddie Mac, Fannie Mae Post Insane, Multi-Billion Dollar Q1 Incomes

by Reno Manuele

Freddie Mac and Fannie Mae, those long beleaguered GSEs, put up some of the strongest incomes in their history in 2013’s first quarter.

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After putting up their most impressive numbers in years in the final months of 2012, both Fannie Mae and Freddie Mac have shown little signs of slowing down in 2013, with the GSEs posting some of the strongest incomes in their histories in 2013’s first quarter.

Freddie Mac’s $4.6 billion income is the second largest in the company’s 43-year history, and is up from an already impressive $4.5 billion income in 2012’s fourth quarter, while Fannie’s income soared even higher, rising from $7.6 billion in 2012’s fourth quarter to $8.1 billion in 2013’s first quarter, the largest income in its history.

Healthy Portfolios Drive Business at Freddie, Fannie

The GSEs first quarter numbers are, if anything, further confirmation of the their dramatic change in fortunes, which began last year with its their annual profits in six years; and as Freddie and Fannie’s first quarter reports explain, their evolving portfolio of mortgages is chiefly to thank:

  • Following the market crash in 2008, Freddie and Fannie tightened their standards at the start of 2009, and as a result, their portfolios of guaranteed loans improved considerably.
  • Thus, 67 percent of Freddie’s volume includes loans made from 2009 to the present day – loans that boast an incredibly low serious delinquency rate of just 0.38 percent. Loans from 2005 to 2008 still make up 22 percent of Freddie’s volume, and with a serious delinquency rating of 9.48 percent, those loans comprise 85 percent of Freddie’s credit losses.
  • Meanwhile, 69 percent of Fannie’s business comes from loans made after 2008, and those mortgages have an average credit score of 761.
  • Because Freddie’s newer, stronger loans now make up such an overwhelming majority of its business, though, it was able to avoid monetary support from the Treasury in 2013’s first quarter, and it paid down its debts to the Treasury by $5.8 billion, while Fannie anticipates a dividend payment to taxpayers of $59.4 billion in the second quarter of 2013.
  • Since Jan. 1, 2009, Freddie has guaranteed 1.6 million home purchases and 1.3 million multifamily rental units, and provided nearly $2 trillion in liquidity to the mortgage markets, while Fannie has guaranteed 2.9 million home purchases, 1.8 million rental units and injected $3.5 trillion into the mortgage markets.

So…What Now?

As positive as Fannie and Freddie’s new is, it inevitably leads to an essential question: what do we do, now, with the GSEs? In the immediate months following the housing crash, Freddie and Fannie were painted as horribly inept, dysfunctional organizations that had gambled on the housing boom, lost billions and effectively put taxpayers on the hook with their implicit government guarantees. And the organization’s taxpayer support – to the tune of tens of billions of dollars – provided considerable fuel for the ire of taxpayers and politicians alike, who demanded reforms to how the GSEs operated.

But now, things are quite different. With the FHA, Fannie and Freddie guarantee 90 percent of new loans made in the U.S., and as their latest numbers suggest, their new approach to lending has ushered in a new era of profitability. And so we’re asking the same question we asked at the start of the year – will GSE reform ever happen? Or are $4.6 and $8.1 billion simply too large to ignore?

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