After a strong start to the beginning of the year, both Fannie Mae and Freddie Mac posted record first quarter 2000 earnings. Market innovation and increased income are hailed as the reasons for the companies' successes.
Earnings come despite numerous legislation floating through Congress making the government-sponsored enterprises look less favorable recently.
Fannie Mae's earnings per share increased 16% over the first quarter 1999 to $1.062 billion - $1.02 per diluted common share. Franklin Raines, chairman and chief executive officer of Fannie Mae, said that solid growth in its mortgage portfolio and net mortgage-backed securities outstanding characterized the agency's performance.
Net MBS outstanding increased by $7.5 billion and guarantee fees increased by $6.8 million. This is due to a guaranty fee increase to 19.4 basis points compared to 19.3 basis points in the fourth quarter of 1999.
Fannie Mae issued $39.0 billion of MBS in the first quarter of 2000 with $961 million of MBS outstanding. This is slightly less than the $49.9 billion issued and $976 million outstanding in the fourth quarter of 1999.
Raines said that Fannie Mae's earnings report displays that the company is on target to double its earnings per share by 2003. "We are very encouraged by our progress toward meeting this ambitious goal, and optimistic about our prospects for achieving it," he said.
Freddie Mac posted a 19% earnings per share increase over first quarter 1999, with earnings of $0.81 per share for first quarter 2000. Net income for this time period was $608 million, compared to $513 for the first quarter 1999.
Freddie Mac added $12 billion to its retained portfolio, according to David Glenn, president and chief operating officer for Freddie Mac, putting the agency on target for a $40 billion to $50 billion growth for the entire year. "We achieved this growth by responding quickly to attractive opportunities as they become available in the market," he said in a press release.
He also credits the creation of a government-sponsored enterprises futures market as a means to enhance liquidity to make the company more attractive going forward.
In other related news, the Office of Federal Housing Enterprise Oversight, the safety and soundness regulator for the GSEs, issued a statement that Freddie Mac and Fannie Mae were adequately capitalized at Dec. 31, 1999. OFHEO determines the GSEs' capital level quarterly.
Fannie Mae beat its minimum capital requirement of $17,770.37 million by $105.63 million. Freddie Mac exceeded its minimum capital requirement of $12,287.20 million by $405.10 million.
OFHEO is currently in the process of installing risk-based capital standards for the GSEs. The reply comment period for the proposed rule closed April 14.