Fannie Mae profitability skyrockets

By Gretchen Wegrich

Mortgage finance institution Fannie Mae turned heads on Thursday morning with the announcement of first-quarter pre-tax net income of $8.1 billion, due to strong credit results buoyed by an improved housing market and a resolution agreement with Bank of America.

The financial institution's first-quarter pre-tax income sets a new record in profitability, Fannie Mae announced. Fannie Mae's pre-tax net income from the previous quarter was $7.6 billion.

Fannie Mae posted a net income of $58.7 billion during the first quarter of 2013, a massive improvement over its 2012 first quarter net income of $2.7 billion. Comprehensive income peaked at $59.3 billion, compared to $3.1 billion a year earlier.

"As a result of actions to strengthen its financial performance and continued improvement in the housing market, Fannie Mae’s financial results have improved significantly over the past five quarters," said Fannie Mae in a statement.

The rise in profitability is attributed to improvements in the housing market, including an increase in home prices and higher average sales of Fannie-Mae owned properties as well as a decline in the number of delinquent loans.

"This decrease [in delinquency] is primarily the result of home retention solutions, foreclosure alternatives, and completed foreclosures, as well as the company’s acquisition of loans with stronger credit profiles since the beginning of 2009," Fannie Mae stated.

Since the housing crisis, Fannie Mae has contributed $3.5 trillion in liquidity to the secondary mortgage markets. The financial institution has also provided mortgage financing to 2.9 million homes and has assisted 10.6 million homeowners in avoiding foreclosure.

Fannie Mae's resolution agreement with Bank of America will add $880 billion to the quarterly profit, with additional funds to be added, reported Fannie Mae. The agreement was compensation related to certain repurchase requests which occurred due to selling representations and warranties, Fannie Mae clarified. 

The financial institution revealed that 69 percent of its business comes from its high-quality new single-family book of business.

"We remain focused on building the new book of business," said Fannie Mae CEO Tim Mayopoulos during a conference call.

Mayopoulos also commented on the need for Congress to enact housing reform.

"Our goal is to have private capital come and take as much of this market as it can," Mayopoulos said.

Incentive for Congress to act to reduce Fannie Mae's involvement in the housing market may be waning; Fannie Mae will send $59.4 billion to the Treasury by the end of June under a support agreement dividend policy.

In combination with Freddie Mac, Fannie Mae will contribute $65 billion to the US Treasury this quarter, or about $55 billion more than expected, wrote Jim Vogel, an financial analyst at FTN Financial. The influx of funds is expected to inhibit bill sales.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.