Solid Q4 for the GSEs?

On Thursday, Fannie Mae and Freddie Mac reported their fourth quarter and full year 2018 financial results.

Fannie Mae reported a net income of $16.0 billion and fourth quarter 2018 net income of $3.2 billion. Fannie Mae expects to pay a $3.2 billion dividend to Treasury by March 31, 2019. Through Q4 2018, the company has paid $175.8 billion in dividends to Treasury.

Among its business highlights, the report indicated that the agency provided approximately $512 billion in liquidity to the mortgage market in 2018. Fannie Mae was the largest issuer of single-family mortgage-related securities in the secondary market for the full year and Q4 2018. Over 56 percent of the single-family mortgage loans the company acquired were affordable to families earning at or below 120 percent of the area median income, providing support for both affordable and workforce housing.

The company’s estimated market share of new single-family mortgage-related securities issuances was 39 percent for the full year 2018 and 37 percent for the fourth quarter of 2018. The report also stated that Fannie Mae has transferred a portion of the credit risk on single-family mortgages with an unpaid principal balance of more than $1.5 trillion since 2013, measured at the time of the transactions, including approximately $354.0 billion in 2018. The company’s credit-related income was $923 million in the fourth quarter of 2018, compared with $557 million in the third quarter of 2018. According to Fannie Mae, the increase in credit-related income in the fourth quarter was driven primarily by lower projected future interest rates and higher forecasted home prices.

“Looking ahead, we will continue working with our customers and other partners on critical challenges, such as increasing the supply of affordable housing and driving digital transformation of the mortgage industry,” Hugh R. Frater, CEO at Fannie Mae. The agency stated this is reflective of the company’s underlying business fundamentals.

Freddie Mac’s results revealed that its net income of $9.2 billion and comprehensive income of $8.6 billion increased $3.6 billion and $3.1 billion, respectively, compared to the results of full-year 2017. These results primarily reflect two significant items in 2017—a $5.4 billion write-down of the company's net deferred tax asset resulting from tax reform legislation, partially offset by a $4.5 billion, or $2.9 billion after-tax, benefit from a litigation settlement related to non-agency mortgage-related securities, combined with lower income tax expense due to the reduction in the statutory corporate income tax rate in 2018.

The agency’s Q4 results net income of $1.1 billion and comprehensive income of $1.5 billion decreased $1.6 billion and $1.1 billion, respectively, from the third quarter of 2018, driven primarily by market-related losses. On the other hand, the Guarantee fee income increased $149 million from the full-year 2017 primarily due to continued growth in the multifamily guarantee portfolio. Overall, the agency reported solid business revenues, strong credit quality, and a higher guarantee portfolio balance.