Fannie Mae Q2 2024 Earnings Report

Fannie Mae EPS Results

• Actual EPS: $0.76
• Consensus EPS: $0.64
• Beat/Miss: Beat by +$0.12
• One Year Ago EPS: N/A

Fannie Mae Revenue Results

• Actual Revenue: $37.73 billion
• Expected Revenue: $7.17 billion
• Beat/Miss: Beat by +$30.56 billion
• YoY Revenue Growth: N/A

Fannie Mae Announcement Details

• Quarter: Q2 2024
• Date: 7/30/2024
• Time: TAS
• Conference Call Date: Tuesday, July 30, 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 Q2 2024 Earnings Call Transcript

Key Takeaways

• Fannie Mae reported Q2 net income of $4.5 billion (up from $4.3 billion in Q1) and grew its net worth to $86.5 billion, further reducing its capital shortfall.
• The company provided $95 billion in liquidity to the single-family and multifamily markets, helping 330,000 households buy, refinance or rent a home—including 108,000 first-time buyers and 72,000 affordable multifamily units.
• High interest rates (30-year fixed at an average 7%) and low inventory kept affordability under pressure, with only 19% of consumers saying it’s a good time to buy and rents rising 100 basis points in Q2.
• Credit quality remained strong: single-family serious delinquencies held near historic lows at 48 basis points, and newly acquired loans averaged a 78% LTV and a credit score of 759, while multifamily property values are down ~20% from their 2022 peak.
• Looking ahead, economists foresee two Fed rate cuts later this year, home prices rising 6.1% in 2024, single-family originations growing to $1.7 trillion, and multifamily volumes of $245–$315 billion.

Presentation

[Operator]

Good day and welcome to the Fannie Mae Second 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, Director of External Communications at Fannie Mae]

Hello, and thank you all for joining today's conference call to discuss Fannie Mae's Second 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 forward-looking statements section in the company's Q2 2024 Form 10-Q filed today, and in the risk factors and forward-looking statements sections in the company's 2023 Form 10-K filed on February 15th, 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, Director of External Communications 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. I'll start by spending a few minutes on the economic environment before speaking to our financial and mission performance for the second quarter of 2024. After that, our Chief Financial Officer, Chryssa Halley, will discuss our quarter results in more detail. Now, turning to the economy, while inflation slowed in the Q2 a higher-for-longer interest rate environment continued as the Fed has made clear that incoming data will determine the pace of rate cuts. The 30-year fixed-rate mortgage rate averaged 7% during the quarter, and we estimate that home prices increased 3% during the quarter and 5.2% since the start of the year. Affordability concerns, together with a low inventory of homes for sale, continue to limit the number of buyers willing and able to buy a home, even as listings have begun to rise.

[Priscilla Almodovar, CEO at Fannie Mae]

You can see this in our July Home Purchase Sentiment Index, where only 19% of consumers say that it's a good time to buy a home. In many parts of the country, affordability remained a challenge for renters too. Nationally, we estimate rents grew about 100 basis points in the Q2, compared to 25 basis points in the Q1. Our economists expect that similar affordability challenges will persist for the remainder of the year. Now, turning to ourQ2 financial results, we reported $4.5 billion in net income, compared to $4.3 billion in the Q1. As a result, we continue to reduce our capital shortfall and build our net worth. Our net worth reached $86.5 billion, further strengthening our financial stability. We provided $95 billion of liquidity to the single-family and multifamily markets in the Q2.

[Priscilla Almodovar, CEO at Fannie Mae]

This helped 330,000 households buy, refinance, or rent a home. This included approximately 72,000 units of multifamily rental housing, a significant majority of which were affordable to households earning at or below 120% of Area Median Income. We also helped 108,000 first-time homebuyers to buy a home. I'm proud of this work and our many efforts to advance the nation's housing market. This includes publishing informative research and insights. For example, we recently refreshed our Mortgage Understanding Study, last completed in 2018. Today's market is very different and tougher for homebuyers. Our study shines a light on consumers' thoughts about home buying, what they know about today's mortgage process, and misconceptions they may have. Two key findings are: one, while the percentage of consumers who feel it is a good time to buy a home is historically low, the dream of homeownership remains high.

[Priscilla Almodovar, CEO at Fannie Mae]

And two, the knowledge of what it takes to qualify for a mortgage is mixed. This is a call to action for all of us to continue to work together to make the mortgage process clearer, simpler, and smarter, and to further support consumers in their path to homeownership through outreach and innovation. That's why Fannie Mae continues to innovate to reduce key obstacles that many consumers face, such as limited credit history and high upfront costs. In addition, we continue to advance innovative ways to connect global capital to U.S. housing. In the first half of this year, we issued over $5 billion in single-family social bonds and over $4 billion in multifamily social bonds. These bonds help mortgage-backed security investors allocate their capital in support of affordable housing and underserved borrowers and markets.

[Priscilla Almodovar, CEO at Fannie Mae]

I encourage you to learn more about our work, which is detailed in our 2023 Corporate Responsibility and Impact Report we released earlier this month. Our actions to provide liquidity, stability, and affordability to the U.S. housing market are grounded in our mission and made stronger by our focus on risk and controls. Our improved financial stability enables us to be a reliable source of mortgage credit for America's homeowners and renters. Before I turn it to Chryssa, I want to thank my colleagues across Fannie Mae, who come to work every day with a shared commitment to our mission. Now, Chryssa will address our Q2 results in more detail.

[Chryssa C. Halley, CFO at Fannie Mae]

Thank you, Priscilla, and good morning. As Priscilla mentioned, we reported $4.5 billion in net income in the Q2, a $164 million increase compared to the Q1 of this year. Our Q2 revenues remained strong at $7.3 billion, thanks to healthy guarantee fee income. We saw a benefit for credit losses this quarter of $300 million, compared to the $180 million benefit we recorded in the Q1. This was driven by a release in single-family reserves, partially offset by an increase in multifamily reserves. The reduction in single-family reserves was primarily due to increases in actual and forecasted single-family home prices, partially offset by a provision on newly acquired single-family loans. The increase in multifamily reserves was due primarily to continued declines in actual and near-term projected property values and the impact of new 30-day loan delinquencies.

[Chryssa C. Halley, CFO at Fannie Mae]

In our single-family business, we acquired $86 billion of single-family loans in the Q2. This was a 38% increase compared to the prior quarter, consistent with seasonal purchase activity. Despite this increase, our acquisition volumes remained low, reflecting low overall market activity and increased competition. Not surprisingly, given the interest rate environment, 87% of these acquisitions were purchase loans. The credit profile of our single-family acquisitions in the Q2 remained healthy, with a weighted average original loan-to-value ratio of 78% and a weighted average credit score of 759. Further, the credit profile of our single-family book remained strong, with a weighted average mark-to-market loan-to-value ratio of 50% and a weighted average credit score at origination of 753. Our single-family serious delinquency rate remained near historically low levels as of June 30th, at 48 basis points compared to 51 basis points in the prior quarter.

[Chryssa C. Halley, CFO at Fannie Mae]

A slowing economy may impact the credit performance of loans in our single-family guarantee book, which could lead to an increase in our single-family serious delinquency rate. Turning to single-family credit risk transfer, we executed four transactions in the second quarter between our Connecticut Avenue Securities, or CAS, and Credit Insurance Risk Transfer programs, transferring a portion of the credit risk on approximately $65 billion of unpaid principal balance at the time of the transactions. In Q2, we also repurchased certain CAS notes and terminated two CAS deals that provided minimal credit protection, reducing lifetime expenses associated with these transactions. We paid $363 million in premiums during the quarter on our outstanding single-family credit risk transfer transactions.

[Chryssa C. Halley, CFO at Fannie Mae]

In our multifamily business, we acquired approximately $9 billion in multifamily loans this quarter, bringing our 2024 multifamily acquisitions through June 30th of this year to over $19 billion, compared to approximately $25 billion in the first half of 2023. This decline reflects low overall multifamily market volumes and increased competition. 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 Q2 multifamily property values continued to decline. According to data from the MSCI Real Assets Commercial Property Price Index, multifamily property values declined nearly 20% from the peak in July 2022 to June 2024, and are now back to the levels last seen in 2021. This is compared to the 19% decline from July 2022 to March 2024 that we mentioned last quarter.

[Chryssa C. Halley, CFO at Fannie Mae]

We continue to monitor the impacts of elevated interest rates on our multifamily book. Higher rates may reduce the ability of multifamily borrowers to refinance their loans prior to maturity when they typically have a balloon payment due. While our near-term maturities remain low, market maturities are expected to be elevated, which could put additional pressure on the multifamily market. Roughly 1.2% of our multifamily book is expected to mature in 2024, and approximately 3.4% is expected to mature in 2025. Our multifamily serious delinquency rate remained at 44 basis points in the second quarter. We expect our multifamily series delinquency rate to increase in the near term due to a portfolio of approximately $600 million of adjustable-rate conventional loans that we anticipate will become seriously delinquent. Lastly, I'll touch on our current economic outlook. Our economists currently expect two rate cuts from the Federal Reserve later this year.

[Chryssa C. Halley, CFO at Fannie Mae]

However, they do not forecast a ramp-up in housing activity. For this to occur, they think the market will need to see some combination of continued household income growth, a further slowing of home price appreciation, or a decline in mortgage rates to bring affordability within the range of many homebuyers. Our current forecast is that home prices will rise 6.1% in 2024, up 1.3 percentage points from last quarter's projection. 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 80% of single-family mortgage originations this year. 2024 multifamily market origination volumes are now expected to be between $245 billion-$315 billion, with a baseline of $275 billion. This is not much different from our estimated $265 billion in multifamily volumes for 2023, but down significantly from $480 billion in 2022.

[Chryssa C. Halley, CFO at Fannie Mae]

We believe that with continued high interest rates, elevated new supply completions, and higher-than-average vacancy rates, multifamily sales activity will remain subdued in the near term, which could result in additional declines in multifamily property values over the short term. Over the longer term, however, we expect sales and valuations will improve due to expected improvements in multifamily housing market fundamentals stemming from positive demographic trends and ongoing job growth. We expect rent growth to remain below historical averages in the 1%-1.5% range in 2024 as a result of elevated new construction completions and many renters dealing with higher levels of consumer debt. 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.

[Chryssa C. Halley, CFO at Fannie Mae]

Thank you for joining us today.

[Operator]

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

Participants

Executives

• Chryssa C. Halley, CFO
• Pete Bakel, Director of External Communications
• Priscilla Almodovar, CEO