Fannie Mae Q3 2024 Earnings Report

Fannie Mae EPS Results

• Actual EPS: $0.69
• Consensus EPS: $0.64
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: N/A

Fannie Mae Revenue Results

• Actual Revenue: $38.14 billion
• Expected Revenue: $7.17 billion
• Beat/Miss: Beat by +$30.97 billion
• YoY Revenue Growth: N/A

Fannie Mae Announcement Details

• Quarter: Q3 2024
• Date: 10/31/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, October 31, 2024
• Conference Call Time: 8:00AM ET

The Federal National Mortgage Association, commonly known as Fannie Mae (OTCMKTS:FNMA) (OTCMKTS:FNMA), is a government-sponsored enterprise established by Congress in 1938 as part of the New Deal to support the U.S. housing market. Headquartered in Washington, D.C., Fannie Mae’s mission is to promote liquidity, stability and affordability in the mortgage market. The company operates by purchasing residential mortgage loans from financial institutions, pooling them into mortgage-backed securities (MBS), and providing guarantees to investors against borrower default.

In its core business, Fannie Mae works with mortgage lenders across the United States—including banks, credit unions and mortgage finance companies—to ensure a steady flow of capital for homebuyers and homeowners seeking refinancing. By securitizing mortgages into MBS, the company helps reduce risk for originators and expands access to mortgage credit, particularly for first-time and moderate-income borrowers. Through various programs and underwriting guidelines, Fannie Mae plays a central role in standardizing mortgage documentation and pricing, thereby fostering transparency and consistency in residential lending.

Since the 2008 financial crisis, Fannie Mae has operated under conservatorship overseen by the Federal Housing Finance Agency (FHFA), which supervises its financial and operational practices to maintain stability in the housing finance system. The enterprise serves a geographic footprint that spans all 50 states, the District of Columbia and U.S. territories, collaborating with a network of approved lenders and servicers. Through its guaranty book of business and ongoing innovation in credit risk transfer, Fannie Mae continues to support the housing finance market while working toward its statutory mission of affordable housing.

Fannie Mae Q3 2024 Earnings Call Transcript

Key Takeaways

• Average 30-year mortgage rates fell to 6.5% in Q3, yet existing home sales remained near 1995 lows as housing affordability challenges persist.
• Q3 net income declined to $4 billion from $4.5 billion in Q2, although net worth grew to $90.5 billion and the regulatory capital shortfall was cut by $17 billion year-to-date.
• Fannie Mae provided $106 billion in liquidity, supporting 383,000 households—including 117,000 first-time buyers—and funding 103,000 affordable multifamily units.
• Single-family loan acquisitions rose 8% to $93.1 billion with a strong average 77% LTV and 759 credit score, but the serious delinquency rate edged up to 52 bps, driven by recent hurricanes and expected slower growth.
• Multifamily credit losses increased, with a $424 million provision (up $176 million), property values down 19.5% from their 2022 peak, and the serious delinquency rate rising to 56 bps amid ARM delinquencies and fraud investigation uncertainty.

Presentation

[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 Bakel, Fannie Mae's Director of External Communications.

[Pete Bakel, Senior Director of External and Financial Communication at Fannie Mae]

Hello, and thank you all for joining today's conference call to discuss Fannie Mae's Third Quarter 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. The risk factors and forward-looking statements sections in the company's Third Quarter 2024 Form 10-Q filed today and in the company's 2023 Form 10-K 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.

[Pete Bakel, Senior Director of External and Financial Communication at Fannie Mae]

I'd now like to turn the call over to Fannie Mae President and Chief Executive Officer Priscilla Almodovar and Fannie Mae Chief Financial Officer Chryssa C. Halley.

[Priscilla Almodovar, CEO at Fannie Mae]

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 third quarter before moving on to our financial results and mission performance. After that, our Chief Financial Officer, Chryssa Halley, 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. Housing affordability still makes it hard for people to buy homes.

[Priscilla Almodovar, CEO at Fannie Mae]

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. Many are spending more than 30% of their income on housing. Now, let's look at our third quarter financial results. We made $4 billion in net income, which is down from the $4.5 billion we made in the second quarter. Our net income increased our net worth to $90.5 billion 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 billion.

[Priscilla Almodovar, CEO at Fannie Mae]

We provided $106 billion of liquidity to the single-family and multifamily markets in the third quarter. 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% of area median income. We also helped 117,000 first-time home buyers 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 home buyers face, like limited credit history and high upfront costs. 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.

[Priscilla Almodovar, CEO at Fannie Mae]

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. 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 repayment 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. They are important parts of how we manage risk.

[Priscilla Almodovar, CEO at Fannie Mae]

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. Now, Chryssa will share more about our third quarter results.

[Chryssa C. Halley, VP and CFO at Fannie Mae]

Thank you, Priscilla, and good morning. As Priscilla mentioned, we reported $4 billion in net income in the third quarter, down $440 million from the second quarter. Our third quarter revenues remained strong at $7.3 billion, driven by steady guarantee fee income, but our benefit for credit losses was down $273 million this quarter. In multifamily, we recorded a $424 million provision for credit losses, up $176 million from the prior quarter. The third quarter provision was largely driven by ARM loans that were written down during the period and modest decreases in forecasted property values. 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.

[Chryssa C. Halley, VP and CFO at Fannie Mae]

In single-family, we recorded a $451 million benefit for credit losses this quarter, which is down $97 million from last quarter. We continued 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. The impact of Hurricane Helene is considered in our allowance. Declining interest rates primarily drove smaller fair value gains this quarter at $52 million versus $447 million of fair value gains last quarter. In our single-family business, we acquired $93.1 billion 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 third quarter acquisitions.

[Chryssa C. Halley, VP and CFO at Fannie Mae]

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.

[Chryssa C. Halley, VP and CFO at Fannie Mae]

Turning to single-family credit risk transfer, we executed three transactions in the third quarter between our Connecticut Avenue Securities, or CAS, and our Credit Insurance Risk Transfer, or CIRT, programs, transferring a portion of the credit risk on approximately $44.5 billion of unpaid principal balance at the time of the transactions. We paid $361 million in premiums during the quarter on our outstanding single-family credit risk transfer transactions. In our multifamily business, we acquired $13.2 billion in loans during the quarter, bringing our 2024 multifamily acquisitions through September 30 to $32.5 billion compared to $41.7 billion in the first nine 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 two times. In the third quarter, multifamily property values continued to decline.

[Chryssa C. Halley, VP and CFO at Fannie Mae]

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 second quarter of 2022 to the third quarter 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. This increase was due to a portfolio of ARM loans with approximately $600 million in UPB that became seriously delinquent during the third quarter. In multifamily credit risk transfer, we executed two transactions through our multifamily CAS and multifamily CIRT programs, transferring a portion of the credit risk on approximately $14.1 billion 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.

[Chryssa C. Halley, VP and CFO at Fannie Mae]

Our economics and strategic research team expects 4.8 million in total home sales in 2024, picking up to 5.2 million units in 2025. We project home price growth of 5.8% for the full year of 2024 and slowing growth to 3.6% in 2025. We expect single-family mortgage originations to grow from $1.5 trillion in 2023 to approximately $1.7 trillion 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 billion, with a range between $245 billion and $315 billion. While not far from our estimated $265 billion in volumes for 2023, this is down significantly from $480 billion in 2022. We expect rent growth to remain below historical averages in the 1%-1.5% range in 2024 because of elevated new construction completions and many renters dealing with high levels of consumer debt.

[Chryssa C. Halley, VP and CFO at Fannie Mae]

Our expectations are based on many assumptions, and our actual results could differ materially from our current expectations. I invite you to visit fanniemae.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.

Participants

Executives

• Priscilla Almodovar, CEO
• Chryssa C. Halley, VP and CFO
• Pete Bakel, Senior Director of External and Financial Communication