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
Mortgage originations fell to $325 billion during the first quarter of 2011 compared with $500 billion in the fourth quarter of 2010, partly driven by higher mortgage rates. However, the Enterprises continued to purchase or guarantee the bulk of mortgages originated, accounting for 75 percent of single-family mortgages securitized in the first quarter of 2011.
Credit Quality of New Single-Family Business
The quality of new business remained high in the first quarter of 2011. The average FICO credit score of new single-family business during the first quarter of 2011 remained high at greater than 750. Purchases of non-traditional mortgages remained very low.
Capital
Combined Treasury support as a result of financial performance in the first quarter of 2011 was $8.5 billion (which was all provided to Fannie Mae). The Single-Family Credit Guarantee segment continues to drive losses as credit-related expenses remain high. Investments segment results were positive in the first quarter of 2011, partially offsetting Single-Family Credit Guarantee segment performance. As the Investments segment generates positive results, the Single-Family Credit Guarantee segment accounts for a growing proportion of total cumulative charges against capital.
The Single-Family Credit Guarantee segment accounts for $194 billion, or 81 percent of combined charges against capital of $239 billion since the end of 2007.
Single-Family Credit Guarantee Segment Results
Credit-related expenses continue to drive segment financial results for the Enterprises. However, Fannie Mae’s credit-related expenses rose during the quarter driven by higher loan loss reserves. The key drivers were a decline in actual and projected home prices, higher severities, the number of trial modifications, and loans continuing to remain delinquent for an extended period of time. Freddie Mac’s credit-related expenses fell during the quarter driven by a decrease in delinquent loan inflows and a decline in the rate at which delinquent loans ultimately transition to a loss event.
Investments and Capital Markets Segment Results
The Investments and Capital Markets segment was a positive contributor to capital during the first quarter of 2011 due to several factors. Funding costs remained low as a result of the interest rate environment and the pricing of private-label securities improved.
Loss Mitigation Activity
Loan modifications are on pace to be below 2010 levels as the level of trial modifications have steadily declined due partly to HAMP income verification requirements and requirements that non-HAMP Fannie Mae modifications go through a trial period.
Projections of Financial Performance
The projected combined Treasury draws for the second half of 2010 and the first quarter of 2011 ranged from $33 billion to $70 billion (as of October 2010). The actual combined Treasury draw for the second half of 2010 and the first quarter of 2011 was $14 billion. The primary drivers of the difference were fewer actual non-performing loans and mortgage defaults than projected. In addition, actual prices of private-label securities were higher than projected, which also contributed to the difference.