GSEs report 2017 financial results

Written By: Joel Palmer, Op-Ed Writer

Freddie Mac and Fannie Mae recently released their 2017 full-year and fourth quarter financial results. Here are some of the highlights:

The recently passed Tax Cuts and Jobs Act led to a sizable fourth-quarter net loss for both GSEs.

Fannie Mae reported a $9.9 billion provision for federal income taxes in the fourth quarter resulting from “the remeasurement of the company's deferred tax assets" due to the new legislation. As a result, Fannie reported a net worth deficit of $3.7 billion as of the end of the year. The company expects FHFA to submit a request to Treasury for that amount. 

Freddie Mac took a $5.4 billion write-down in the fourth quarter due to the impact of the recent tax reform legislation. Based on its net worth deficit of $312 million, FHFA will submit a draw requestto Treasury for that amount.

The GSEs financed fewer loans in 2017.

Largely due to a decline in refinance activity, total loan volume for the GSEs fell 12 percent year-over-year in 2017, down to 3.7 million purchased loans. Combined loan amounts purchased  by Fannie and Freddie totaled $845.8 billion, a decrease of about 13 percent compared to 2016 volume.

Overall, it was a profitable year for both GSEs.

Fannie Mae reported 2017 net income of $2.5 billion, compared with $12.3 billion in 2016. On a pre-tax basis, Fannie’s net income last year was $18.4 billion, slightly ahead of the $18.3 billion reported in 2016.

Freddie Mac’s full-year 2017 net income was $5.6 billion, own from $7.8 billion the year before. The impact of the tax reform legislation was partially offset by a $4.5 billion litigation settlement received in the third quarter of last year. Excluding these one-time occurrences, Freddie’s comprehensive incomewas $8.1 billion in 2017, an increase of about $1 billion from 2016.

In December, FHFA and Treasury agreed to increase the applicable capital reserve amount to $3 billion, effective January 1, 2018, and reduce the dividend amount otherwise payable for the fourth quarter of 2017 by $2.4 billion.

Last year’s major hurricanes affected delinquency rates. 

Fannie’s rate rose for the first time in several years from 1.20 percent in 2016 to 1.24 percent in 2017. The increase was largely the result of Fannie permitting its servicers to grant a 90-day period of disaster forbearance to any impacted homeowner in the hurricane-affected regions.Freddie’s delinquency rate for the year was 1.08 percent, up 8 basis points from the year before, which it also attributed to the hurricanes.

Guaranty fees may be increasing.

Fannie noted that, based on guidance issued in December 2017, FHFA will require the company to meet a specified minimum return on equity “based on the conservator capital framework.” Fannie must implement this target in the first quarter of this year. As such, Fannie stated that it may have to increase some of its guaranty fees, which it charges lenders to cover projected credit losses, administrative costs, and a return on capital.

The GSEs continue to transfer credit risk.

Fannie Mae has transferred a portion of the credit risk on single-family mortgages with an unpaid principal balance of more than $1.2 trillion since 2013, measured at the time of the transactions, including more than $390 billion in 2017. As of December 31, 2017, $922 billion in single-family mortgages or approximately 32 percent of the loans in the company’s single-family conventional guaranty book of business, measured by unpaid principal balance, were covered by a credit risk transfer transaction.

Freddie Mac transferred a majority of credit risk on $280 billion in UPB of loans during 2017 and have now transferred a portion of credit risk on 35 percent of the total outstanding guarantee portfolio, up from 26 percent a year ago.

About the Author

As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

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