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 in 2012 rose for the first time in two years spurred by refinance volume. Refinance activity remained robust as mortgage rates reached new record lows and Home Affordable Refinance Program (HARP) volume remained high driven by enhancements targeting deeply underwater borrowers. Seventy-two percent of all mortgage originations in 2012 were due to refinance volume. Fannie Mae and Freddie Mac accounted for $1.3 trillion or 77 percent of mortgage-backed securities (MBS) issuance in 2012.
Fannie Mae and Freddie Mac continued to provide substantial support for the multifamily market in 2012. The Enterprises purchased or guaranteed $62.5 billion of multifamily origination volume in 2012 representing an estimated 44 percent of the market. Enterprise new business volume increased 40 percent from 2011 levels.
Credit Quality of New Single-Family Business
The quality of new business remained high during the year, as evidenced by average FICO credit scores above 755. The Enterprises continue to experience an increase in new business with loan-to-value (LTV) ratios greater than 90 percent, which is directly related to increased activity under HARP. Purchases of non-traditional and higher-risk mortgages continued to be very low.
Financial Results
Fannie Mae and Freddie Mac reported record earnings in 2012 influenced by signs of recovery in the housing market. This year marks the first time since 2006 that both Enterprises reported positive net income. Fannie Mae and Freddie Mac reported net income in 2012 of $17.2 billion and $11.0 billion, respectively, ending the year with net worth of $7.2 billion and $8.8 billion, respectively.
Single-Family Credit Guarantee Segment Results
In 2012, both Enterprises reported significantly lower provisions for credit losses. Improvement in national home prices (including sales prices of real estate owned (REO) properties), together with a shrinking delinquent loan count, reduced the need for further increases in loan loss reserves resulting in lower provisions for credit losses. Fannie Mae generated income from the Single-Family Guarantee Segment in 2012.
Investments and Capital Markets Segment Results
The Investments and Capital Markets segment was a positive contributor to capital in 2012. Both Enterprises continued to benefit from low funding costs driven by the low interest rate environment, contributing to this segment generating $27 billion in total comprehensive income for the year.
Loss Mitigation Activity
Since conservatorship, the Enterprises have completed approximately 2.7 million foreclosure prevention actions. More than 2.2 million of these actions have helped troubled homeowners save their homes including over 1.3 million permanent loan modifications.
Projections of Financial Performance
Cumulative Treasury draws remained unchanged at $187.5 billion. Both Enterprises ended the quarter with positive net worth, and as a result, neither Enterprise required a Treasury draw in the second half of the year.
The projected combined Treasury draws for the second half of 2012 ranged from $3 billion to $17 billion. The primary driver of the difference between actual and projected performance was lower than projected provisions for credit losses and lower than projected mark-to-market losses. Lower provisions for credit losses were mainly driven by improved portfolio quality reflected in lower delinquencies and improvements in national home prices.