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 are on pace to be below 2010 levels, despite declining mortgage rates during the first half of 2011. The Enterprises experienced a decline in MBS issuance market share as Ginnie Mae market share increased.
Credit Quality of New Single-Family Business
The quality of new business remained high in the second quarter of 2011. The average FICO credit score of new single-family business for the first half 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 second quarter of 2011 was $6.6 billion. The Single-Family Credit Guarantee segment continues to drive losses as credit-related expenses remain high. The Investments segment results were positive in the second quarter of 2011, partially offsetting the 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 $201 billion, or 81 percent of combined charges against capital of $247 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 were positively impacted during the first half of 2011 by a lower provision for credit losses in 2Q11. The decrease in provision for credit losses at Fannie Mae was partly due to an increase in make-whole amounts related to repurchase requests that were received during the quarter.
Investments and Capital Markets Segment Results
The Investments and Capital Markets segment was a positive contributor to capital for the first half of 2011. 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 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 half of 2011 ranged from $39 billion to $93 billion (as of October 2010). The actual combined Treasury draw for the second half of 2010 and the first half of 2011 was $21 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.