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
Seventy-five percent of all mortgage originations in the first quarter of 2012 were due to refinance volume. Refinance volumes surged during the first quarter of 2012, in response to a sustained period of record low mortgage rates, enhancements in the Home Affordable Refinance Program, and increased volume ahead of the 10 basis point guarantee fee increase in April 2012. As a result, combined Enterprise MBS issuance share grew to 79% in the first quarter of 2012.
Credit Quality of New Single-Family Business
The quality of new business remained high in the first quarter of 2012, as evidenced by average FICO credit scores around the 760 range. Both Enterprises have experienced an increase in new business with LTVs greater than 90 percent. This is primarily due to activity related to the Enterprises’ 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 fell to a total of $19 million in the first quarter of 2012, all of which pertains to Freddie Mac. Losses in the Single-Family Credit Guarantee segment declined sizably, particularly at Fannie Mae, as a result of lower provisions for credit losses. The Investments segment results continued to be positive in the first quarter of 2012 driven by low funding costs as a result of the low interest rate environment. 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 continued to drive Single-Family Credit Guarantee segment financial results for the Enterprises. However, losses decreased in the first quarter of 2012, driven by lower provisions for credit losses, particularly at Fannie Mae. Lower provisions for credit losses were driven by improvement in both REO disposition values and early stage delinquencies, as well as, the continued decrease in the seriously delinquent loan population.
Investments and Capital Markets Segment Results
The Investments and Capital Markets segment was a positive contributor to capital in the first quarter of 2012, as both Enterprises continued to benefit from low funding costs as a result of the low interest rate environment.
Loss Mitigation Activity
Since conservatorship, the Enterprises have completed approximately 2.3 million foreclosure prevention actions. Half of these actions were permanent loan modifications.
Projections of Financial Performance
The projected combined Treasury draws for the second half of 2011 and the first quarter of 2012 ranged from $33 billion to $74 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, combined with improvement in REO disposition values.