Fannie Mae’s earnings soar to $7.2B as it sets a purchase loan record

Fannie Mae on Tuesday recorded a near-tripling of its second-quarter earnings on an annual basis to $7.2 billion, driven primarily by credit-related income as single-family purchase loan acquisitions jumped to a new high of $129.5 billion.

The government-sponsored enterprise’s net income was up from $2.55 billion the same period a year ago, and the $5 billion it earned during the previous quarter. Its comprehensive income in the second quarter was $7.1 billion, compared to $2.53 billion a year earlier, and almost $5 billion in the first quarter.

Fannie’s net worth rose to $37.3 billion from $16.5 billion during the same period a year earlier, and from $30.2 billion in 1Q20. Net revenues rose to $8.4 billion from nearly $5.9 billion a year ago and $6.8 billion the previous fiscal period. Second-quarter purchase loan acquisitions increased from $92 billion a year ago and $99 billion the previous quarter.

The GSE’s record purchase volume highlights a change in the market from a year ago, when refinancing volume hit a high that hadn’t been seen since 2003. Refinances still dominate in Fannie’s acquisitions, but in the second quarter they fell annually to $244 billion from $259 billion, and also were down from $301 billion on a quarterly basis.

While forecast and actual numbers related to the hot home-purchase market’s prices were key drivers of Fannie’s results, they also create a challenge for its affordable housing mission, which it is working to address at the direction of its regulator, CEO Hugh Frater said in an earnings call

“We recognize that the housing market...is not serving the needs of everyone. We need to change that,” Frater said, noting that home prices are increasing at more than twice the rate of incomes.

Fannie Mae's RefiNow program, launched in June, is aimed at removing some hurdles that have prevented low-income borrowers from taking advantage of favorable current rates and reducing their monthly payments, he said. He did not immediately have numbers available for the new program.

“RefiNow has been in the market for less than two months, but we're seeing good application volume and acquisitions are starting to flow through,” Frater said.

 A fee that RefiNow eliminates for low-income borrowers was removed from the broader market this month, potentially further increasing access to its loan products. About 50% of Fannie Mae's purchase volume went to first-time home buyers over the second quarter, Frater said.

Forbearance and delinquency rates continued to drop. Serious delinquencies, including forbearance, fell to 2.08% in June, down from 2.24% in May and 2.65% a year earlier. Prior to the pandemic they were at unusually low levels below 1%. Reperforming loans drove $601 million in investment gains during the quarter.

Gains at Fannie were partially offset by $446 million in fair value losses stemming from a decrease in Treasury yields that led to losses on commitments to sell securities and debt.

Overall, Fannie’s relative gains in earnings and net worth were somewhat similar to competitor Freddie Mac’s. Freddie’s net income rose to $3.7 billion from $1.8 billion during the second quarter of last year, improving upon 1Q21’s $2.8 billion. Freddie’s net worth rose 96% annually to $22.4 billion, and 19% from the first quarter.