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-two percent of all mortgage originations in the first half of 2012 were due to refinance volume. Refinances surged during the first half of 2012, in response to a sustained period of record low mortgage rates, enhancements to the Home Affordable Refinance Program (HARP), and lender reaction to the 10 basis point guarantee fee increase in April 2012. As a result, combined Enterprise mortgage-backed securities (MBS) issuance share grew to 77 percent in the first half of 2012.
Credit Quality of New Single-Family Business
The quality of new business remained high in the first half of 2012, as evidenced by average FICO credit scores around the 760 range. Both Enterprises have experienced an increase in new business with loan-to-value (LTV) ratios greater than 90 percent, due to refinance programs that support improving the housing market, including HARP.
Capital
For the first time since the start of the conservatorships in the third quarter of 2008, both Enterprises ended the second quarter of 2012 with positive net worth. Also for the first time in conservatorship, the Single-Family Credit Guarantee segment generated income in the second quarter of 2012, as a result of substantially lower provisions for credit losses, particularly at Fannie Mae. The Investments segment results continued to be positive in the second quarter of 2012 driven by low funding costs as a result of the low interest rate environment.
Single-Family Credit Guarantee Segment Results
In the first half of 2012, Fannie Mae generated credit-related income and Freddie Mac incurred substantially lower credit-related expenses, primarily due to substantially lower provisions for credit losses. Lower provisions for credit losses were driven by improvement in both national home prices and real estate owned (REO) disposition values, and 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 half 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 2.4 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 half of 2012 ranged from $35 billion to $91 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. Lower provisions for credit losses were mainly driven by improved portfolio quality reflected in lower delinquencies and lower LTV ratios, combined with higher REO disposition values.