Fannie Mae Releases Q1 Earnings – Shocks Market With Forbearance Estimates

By David Stevens, CMB

Fannie Mae reported Q1 earnings today, posting a net income of $461 million for the first quarter of 2020, compared with net income of $4.4 billion for the fourth quarter of 2019. The drop in net income was primarily due to a $2.8 billion variance from Q4 2019 in posted credit loss provisions, due to the impacts of the Corona virus and expected forbearance utilization by borrowers in their securities.

Fannie Mae also saw a reduction in its net worth. As it reported in its earnings release, “Fannie Mae’s net worth declined from $14.6 billion as of December 31, 2019, to $13.9 billion as of March 31, 2020. Although the company had comprehensive income for the first quarter of 2020, its net worth declined as a result of a $1.1 billion charge to retained earnings due to implementation of the Current Expected Credit Loss (CECL) standard on January 1, 2020. “

Given that Q1 has yet to show the true impact of Corona, we will await Q2 results with heightened anticipation. Fannie Mae made forward-looking statements to temper investors and analysts stating that they expected total in forbearance loans to potentially exceed 15 percent.

This was a fairly alarming estimate, given that the FHFA director had previously stated a far lower expectation.

To put this in perspective, with FHA forbearance levels higher than the GSEs, the combined all-in forbearance numbers for all government guaranteed mortgages could get closer to the 20 percent number. This would put the actual figure closer to those initially estimated by the MBA and other economists, only raising concern for liquidity.

The good news is that Fannie Mae has ample capital to draw from, as shown in their release this morning. While they have $13.9 billion in balance sheet capital, they have $113.9 billion in Treasury funding commitment as shown here.

This release should only increase the calls for liquidity for non-bank servicers. After all, while Fannie and Freddie are backed by the government to support the CARES Act Forbearance Plan, the non-banks that service their mortgages on behalf of the GSEs are not. Hopes are that FHFA Director Mark Calabria might take his significant underestimation from his previous statements and recognize the need to convey confidence to the markets given the vastly larger estimate of risk as stated in today’s earnings call.

 

David H. Stevens, CMB, is a Mortgage Media Advisor, and former SVP of Single Family at Freddie Mac, former EVP at Wells Fargo Home Mortgage, former President and COO of the Long and Foster Realty Companies, former Assistant Secretary of Housing and FHA Commissioner, former CEO of the Mortgage Bankers Association.