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 for the second consecutive year, as home purchase activity remains weak, despite historically low mortgage rates during 2011. Sixty-five percent of all mortgage originations this year were due to refinance volume. The Enterprises continue to dominate the MBS issuance market, accounting for 73 percent market share.
Credit Quality of New Single-Family Business
The quality of new business remained high in 2011, as evidenced by average FICO credit scores greater than 750. Both Enterprises have experienced a slight uptick in new business with LTVs greater than 90 percent. This is primarily due to activity related to Enterprise refinance programs (including the Home Affordable Refinance Program) that support improving the housing market.
Capital
Combined Treasury support as a result of poor financial performance in 2011 totaled $33.6 billion. The Single-Family Credit Guarantee segment continues to drive overall losses as credit-related expenses remain relatively high. The Investments segment results continued to be positive in 2011 driven by low funding costs as a result of the low interest rate environment, partially offset by fair value losses on derivatives. The Single-Family Credit Guarantee segment and senior preferred dividends have been the main drivers of charges against capital since the end of 2007.
Single-Family Credit Guarantee Segment Results
Credit-related expenses continue to drive Single-Family Credit Guarantee segment financial results for the Enterprises. Enterprise combined revenue for this segment of $11 billion for the year was more than offset by $40 billion in credit-related expenses. Credit-related expenses were driven by the provision for credit losses due to factors such as home price deterioration, newly delinquent loans, and lower expected recoveries from mortgage insurers.
Investments and Capital Markets Segment Results
The Investments and Capital Markets segment continued to be a positive contributor to capital in 2011. Funding costs remained low as a result of the interest rate environment, contributing to the $20 billion in total revenue generated by this segment for the year.
Loss Mitigation Activity
Since conservatorship, the Enterprises have completed more than 2.1 million foreclosure prevention actions. Approximately half of these actions, nearly 1.1 million in total, were permanent loan modifications.
Projections of Financial Performance
The projected combined Treasury draws for the second half of 2011 ranged from $29 billion to $56 billion. This compares to an actual combined draw of $19 billion. The primary driver of the difference between actual and projected performance was lower than projected provisions for credit losses, particularly at Fannie Mae. Lower provisions for credit losses were mainly driven by an improved book profile reflected in lower delinquencies.