Federal National Mortgage Association Q3 2024 Earnings Call Transcript

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Provided by Quartr
October 31, 2024

There are 3 speakers on the call.

Operator

Good day, and welcome to the Fannie Mae Third Quarter 2024 Financial Results Conference Call. At this time, I will now turn it over to your host, Pete Bekell, Fannie Mae's Director of External Communications. Hello, and thank you all for joining today's conference call to discuss Fannie Mae's Q3 2024 financial results. Please note this call includes forward looking statements, including statements about Fannie Mae's expectations related to economic and housing market conditions, the future performance of the company's book of business and the company's business plans and their impact. Future events may turn out to be very different from these statements.

Operator

The Risk Factors and Forward Looking Statements sections in the company's Q3 2024 Form 10 Q filed today and in the company's 2023 Form 10 ks filed on February 15, 2024 describe factors that may lead to different results. A recording of this call may be posted on the company's website. We ask that you do not record this call for public broadcast and that you do not publish any full transcript. I'd now like to turn the call over to Fannie Mae President and Chief Executive Officer, Priscilla Amodilvar and Fannie Mae Chief Financial Officer, Chrissa C. Halley.

Speaker 1

Welcome and thank you for joining us. Before we get into our results, I want to mention those affected by recent natural disasters. These events can be tough and Fannie Mae is here to help. I'll discuss this more shortly. I'll start by talking about the economic conditions in the Q3 before moving on to our financial results and mission performance.

Speaker 1

After that, our Chief Financial Officer, Chrissa Haley will discuss our quarterly results in more detail. First, the economy. The 30 year fixed rate mortgage rate averaged 6.5% during the quarter, more than 50 basis points lower than the same time last year. Even with lower rates and better supply in some areas, existing home sales stayed low. Our research team thinks 2024 will have the lowest existing home sales since 1995.

Speaker 1

Housing affordability still makes it hard for people to buy homes. We estimate home prices went up about 1% during the quarter and 5.9% since the start of the year. Overall, home prices are up over 50% since 2019. With this in mind, it is not surprising that only 19% of people surveyed in our recent home purchase sentiment index said it was a good time to buy a home. For renters too, affordability is still a problem in many areas.

Speaker 1

Many are spending more than 30% of their income on housing. Now let's look at our Q3 financial results. We made $4,000,000,000 in net income, which is down from the $4,500,000,000 we made in the 2nd quarter. Our net income increased our net worth to $90,500,000,000 as of the end of September, making us even more financially stable. Plus, since the start of this year, we've reduced our minimum regulatory capital shortfall by $17,000,000,000 We provided 100 and $6,000,000,000 of liquidity to the single family and multifamily markets in the Q3.

Speaker 1

Our efforts helped 383,000 households buy, refinance or rent a home. This included about 103,000 units of multifamily rental housing, mostly affordable for households earning at or below 120 percent of area median income. We also helped 117,000 first time homebuyers to buy a home. Our efforts are focused on shaping a housing market that sees and serves more people. This includes our ongoing work to remove obstacles that many renters and homebuyers face, like limited credit history and high upfront costs.

Speaker 1

For example, in both multifamily and single family, we're using rent payment data to support better outcomes for consumers. Additionally, we are exploring new ways to support our mission in the capital markets, like with our single family and multifamily social bonds that help direct capital towards affordable housing and underserved borrowers and markets. Our mission is not just about helping people get into homes, but also helping them stay in their homes, especially during tough times like disasters. Fannie Mae provides many resources to renters and homeowners after disasters. This includes free personalized help from HUD approved housing counselors.

Speaker 1

It also includes mortgage assistance for eligible Fannie Mae homeowners where they can temporarily reduce or suspend their mortgage payments under a forbearance plan. After this period, we offer workout options to catch up on missed payments like our disaster payment deferral and flex modification. For eligible multifamily owners that are borrowers, we offer help such as forbearance and new payment plans. This allows them to temporarily suspend payments and then to catch up through structured payment plans. These options not only help communities grow stronger, but they make Fannie Mae's business more stable.

Speaker 1

They are important parts of how we manage risk. These efforts show that we are committed to working with our partners to support homeowners and renters in the U. S. We are also focused on strengthening our finances and managing risks, which helps us provide liquidity and stability to the housing market and achieve our mission. Thank you to my Fannie Mae colleagues for their dedication to finding innovative solutions to the nation's toughest housing challenges.

Speaker 1

Now, Chrissa will share more about our Q3 results.

Speaker 2

Thank you, Priscilla, and good morning. As Priscilla mentioned, we reported $4,000,000,000 in net income in the 3rd quarter, down $440,000,000 from the 2nd quarter. Our 3rd quarter revenues remained strong at $7,300,000,000 driven by steady guarantee fee income, but our benefit for credit losses was down $273,000,000 this quarter. In multifamily, we recorded a $424,000,000 provision for credit losses, up $176,000,000 from the prior quarter. The 3rd quarter provision was largely driven by ARM loans that were written down during the period and modest decreases in forecasted property values.

Speaker 2

We have reflected some uncertainty in the allowance for property value projections and assume it will take longer to see a recovery. Our multifamily allowance also reflects uncertainty relating to the ongoing investigation of lending transactions with suspected fraud. In single family, we recorded a $451,000,000 benefit for credit losses this quarter, which is down $97,000,000 from last quarter. We continue to see increases in forecasted home prices as the primary driver of our change in reserves, which are down to levels seen in 2021. Also, Priscilla mentioned the hurricanes.

Speaker 2

The impact of Hurricane Helene is considered in our allowance. Declining interest rates primarily drove smaller fair value gains this quarter at $52,000,000 versus $447,000,000 of fair value gains last quarter. In our single family business, we acquired $93,100,000,000 in loans this quarter. This was up 8% compared to the prior quarter, mainly attributable to an increase in purchase volume for seasonal activity and a decline in average mortgage rates of 49 basis points. Purchase loans made up 86% of our 3rd quarter acquisitions.

Speaker 2

The credit profile of our single family acquisitions remains strong with a weighted average loan to value ratio of 77% and a weighted average credit score of 759. Our single family serious delinquency or SDQ rate remained near historically low levels, increasing to 52 basis points at the end of September from 48 basis points at the end of June. We anticipate that the impact of Hurricanes Helene and Milton will result in an increase in our single family SDQ rate in the short term. In addition, given our expectation of slower economic growth, we expect the credit performance of the loans in our single family book may decline compared to recent performance, which could lead to an increase in our single family SDQ rate. Turning to single family credit risk transfer, we executed 3 transactions in the 3rd quarter between our Connecticut Avenue Securities or CAS and our Credit Insurance Risk Transfer or SERT programs, transferring a portion of the credit risk on approximately $44,500,000,000 of unpaid principal balance at the time of the transactions.

Speaker 2

We paid $361,000,000 in premiums during the quarter on our outstanding single family credit risk transfer transactions. In our multifamily business, we acquired $13,200,000,000 in loans during the quarter, bringing our 2024 multifamily acquisitions through September 30 to $32,500,000,000 compared to $41,700,000,000 in the 1st 9 months of 2023. Our overall multifamily book had a weighted average original loan to value ratio of 63% and a weighted average debt service coverage ratio of 2 times. In the Q3, multifamily property values continued to decline According to the most recent data from the MSCI Real Assets Commercial Property Price Index, multifamily property values declined 19.5% from the peak in the Q2 of 2022 to the Q3 of 2024 and are now back to the levels last seen in 2021. Our multifamily SDQ rate increased to 56 basis points at the end of September this year compared to 44 basis points at the end of June.

Speaker 2

This increase was due to a portfolio of ARM loans with approximately $600,000,000 in UPB that became seriously delinquent during the Q3. In multifamily credit risk transfer, we executed 2 transactions through our multifamily cash and multifamily cert programs, transferring a portion of the credit risk on approximately $14,100,000,000 of unpaid principal balance at the time of the transactions. Lastly, I'll touch on our current economic outlook. As Priscilla shared, existing home sales remain subdued. Our economics and strategic research team expects $4,800,000 in total home sales in 2024, picking up to 5,200,000 units in 2025.

Speaker 2

We project home price growth of 5.8 percent for the full year of 2024 and slowing growth to 3.6% in 2025. We expect single family mortgage originations to grow from $1,500,000,000,000 in 2023 to approximately $1,700,000,000,000 in 2024 with purchases making up 78% of single family mortgage originations this year. We continue to expect 2024 multifamily market origination volumes to be roughly $275,000,000,000 with a range between $245,000,000,000 $315,000,000,000 While not far from our estimated $265,000,000,000 in volumes for 2023, this is down significantly from $480,000,000,000 in 2022. We expect rent growth to remain below historical averages in the 1% to 1.5% range in 2024 because of elevated new construction completions and many renters dealing with high levels of consumer debt. Our expectations are based on many assumptions and our actual results could differ materially from our current expectations.

Speaker 2

I invite you to visit fannie mae.com where you'll find a financial supplement with today's filing that provides additional insights into our business. Thank you for joining us today.

Operator

Thank you, everyone. That concludes today's call. You may disconnect.

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Key Takeaways

  • Fannie Mae reported Q3 net income of $4 billion, down from $4.5 billion in Q2, boosting its net worth to $90.5 billion and reducing its regulatory capital shortfall by $17 billion year-to-date.
  • The company provided $106 billion of liquidity to single-family and multifamily markets, aiding 383,000 households—117,000 first-time buyers and 103,000 affordable multifamily rental units.
  • Mortgage rates averaged 6.5% for a 30-year fixed loan, existing home sales are on track for their lowest level since 1995, and home prices rose ~1% in Q3 (50% since 2019), fueling ongoing affordability challenges.
  • Credit performance saw single-family serious delinquencies tick up to 52 bps with $93.1 billion in loan acquisitions (86% purchases, avg LTV 77%, credit score 759), while multifamily property values fell 19.5% from the 2022 peak and SDQ reached 56 bps.
  • Risk management efforts included credit risk transfers on ~$44.5 billion of single-family and ~$14.1 billion of multifamily unpaid principal, plus allowance adjustments with a $424 million provision for multifamily and a $451 million benefit for single-family credit losses.
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Earnings Conference Call
Federal National Mortgage Association Q3 2024
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