Fannie Mae reported weaker earnings in the third quarter – including a loss on its single-family business – but also announced that its MBS market share set a new all time record: 52%.

The government controlled GSE reported what it calls ‘comprehensive income’ of $2.6 billion and then turned around and paid the U.S. Treasury – the owner of its preferred stock -- $2.9 billion in dividends.

In the second quarter it had net income of $5.1 billion. (Third quarter net income, which excludes some items, was $1.8 billion.)

However, the GSE will not need to draw additional money from the Treasury because it has a positive net worth position. According to an SEC filing accompanying its earnings, the firm has total equity of $2.4 billion.

The quality of its new business is the best it’s been in years, but part of the reason its fortunes have improved is the shrinking nature of its loan loss reserves. At Sept. 30 those reserves had fallen to $67 billion from $68 billion at June 30 and $76 billion a year ago.

Meanwhile, Fannie – like its cross-town rival Freddie Mac – is seeing higher demand for REO properties -- and higher sale prices on those units.

The GSE sold nearly 44,000 foreclosed properties in the third quarter, recovering 61% of the unpaid principal balance of the loan, up from 54% a year ago.

“Higher home prices decrease the likelihood that loans will default and reduce the amount of credit losses on loans that do default,” the company said in its third quarter securities filing.

As for its three main business segments, the results were somewhat mixed.

Fannie incurred an $822 million loss on its single-family business primarily due to a $2.1 billion provision for loan losses. 

“The positive impact of higher home prices and higher REO sales values on our provision for credit losses in the third quarter was partially offset by a $3.5 billion increase in our provision for credit losses due to changes in our assumptions and data used to in calculating our loss reserves,” Fannie said.

In the second quarter, the secondary market agency reported a $4.4 billion profit from its single-family business.

Its multifamily business earned $427 million in 3Q, a 19% improvement from 2Q. But its strongest unit was capital markets where it earned $4.1 billion – almost triple of what it took in during the prior quarter.

Part of that is tied to its MBS business. The mouth-watering 52% share it has in MBS compared to 46% in 2Q and 43% in the third quarter of 2011.

The ‘serious delinquency’ rate on its business fell to a multi-year low of 3.41% at Sept. 30. Two years ago it was just shy of 5%.

On Tuesday Freddie Mac posted stellar gross earnings of $5.6 billion, which excludes a $1.8 billion dividend it was required to pay Treasury.

Freddie Mac has a positive net worth of $4.9 billion.


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