This quarterly report provides an overview of key aspects of the financial condition of Fannie Mae and Freddie Mac during conservatorship.
Executive Summary
Mortgage Markets and the Enterprises’ Market Presence
Conventional, conforming mortgages accounted for the majority of mortgages originated through September of this year. The Enterprises continue to account for the majority of secondary market issuance. Together with Ginnie Mae they guaranteed 96 percent of single-family mortgages issued in the first nine months of 2010.
Credit Quality of New Single-Family Business
Purchase quality in 2010 through September remained high. The average FICO credit score of new single-family business was 760 during this period and purchases of higher-risk products remain low.
Capital
The Single-Family Credit Guarantee segment continues to drive capital reduction, accounting for $175 billion, or 76 percent of combined charges against capital of $229 billion since the end of 2007. During the third quarter, losses from the Single-Family Credit Guarantee segment were largely offset by the performance of the Investments and Multifamily Segments.
Single-Family Credit Guarantee Segment Results
Credit-related expenses continue to drive losses in the Single-Family Credit Guarantee segment. Nontraditional and higher-risk mortgages concentrated in the 2006 and 2007 vintages account for a disproportionate share of credit losses. However, house price declines and prolonged economic weakness have taken a toll on the credit performance of traditional mortgages.
Investments and Capital Markets Segment Results
The Investments and Capital Markets segment accounts for $12 billion, or 5 percent, of capital reduction from the end of 2007 through the third quarter of 2010. Losses in the Investments and Capital Markets segment stemmed from impairments of private-label securities, fair-value losses on securities, and fair-value losses on derivatives (used for hedging interest rate risk).
Loss Mitigation Activity
Since 2008, the Enterprises have enhanced their standard loss mitigation programs to address the needs of delinquent borrowers in this credit cycle. Implementation of the Making Home Affordable program in 2009, together with the Enterprises’ enhanced loss mitigation programs, expanded the options available to delinquent borrowers to retain or give up their homes while avoiding foreclosure.