The primary driver of the nearly 50 percent quarter-over-quarter increase in net income was lower fair value losses for Q1, according to Fannie Mae's announcement. Fair value losses totaled $1.9 billion for Q1, compared to $2.5 billion for Q4 2014, primarily due to smaller declines in longer-term interest rates that negatively impact Fannie Mae's risk management derivatives.
Fannie Mae's comprehensive income for Q1 was reported at $1.8 billion, up from $1.3 billion in Q4. The Enterprise reported a net worth of $3.6 billion as of the end of Q1, which will result in a payment of $1.8 billion to the Department of Treasury in June per the terms of a 2012 amendment to the 2008 bailout agreement. Following the forthcoming June payment, Fannie Mae will have paid $138.2 billion in dividends to Treasury – about $22.1 billion more than the $116.1 billion bailout Fannie Mae received from taxpayers in 2008 to continue operations.
"This was another quarter of strong financial performance. We continued to have solid revenues. While we experienced some interest rate volatility again this quarter, we expect to remain profitable on an annual basis for the foreseeable future," said Timothy J. Mayopoulos, President and CEO of Fannie Mae. "We continued to make progress against our goals, and we are managing the company on a basis that produces good economic value for the taxpayer. We are focused on delivering value to our business partners and making it simpler and easier for lenders to serve the housing market safely, efficiently, and profitably."
Other highlights of Fannie Mae's Q1 financial reports include 34,000 workout solutions to homeowners to avoid foreclosure or retain their homes during the quarter, and $124 billion in liquidity to the mortgage market, enabling families to buy, refinance, or rent homes.
Earlier this week, Fannie Mae's fellow GSE, Freddie Mac, reported a net income of $524 million for Q1, up from $227 the previous quarter. Q1 was the 14th consecutive quarter of profitability for Freddie Mac.
Both GSEs returned to profitability in 2012, four years after their combined $187.5 billion bailout from taxpayers, and they have been profitable ever since. Some analysts have recently questioned their ability to remain profitable, however; the results of a stress test released last week by the GSEs' conservator, the Federal Housing Finance Agency (FHFA), showed that Fannie Mae and Freddie Mac would likely need a bailout of up to $157 billion when certain hypothetical adverse economic conditions were applied.
"Fannie Mae expects to remain profitable on an annual basis for the foreseeable future; however, the company expects its earnings in 2015 and future years will be substantially lower than its earnings for 2014, due primarily to the company’s expectation of substantially lower income from resolution agreements, continued declines in net interest income from its retained mortgage portfolio assets, and lower credit-related income," Fannie Mae said in its report. "In addition, certain factors, such as changes in interest rates or home prices, could result in significant volatility in the company’s financial results from quarter to quarter or year to year."
Other factors that will affect Fannie Mae's profitability in the future include guaranty fee rates, single-family mortgage origination volume, and the size, composition, and quality of its mortgage portfolio and book of business, in addition to economic and housing market conditions, according to Fannie Mae.