Despite the challenges that plagued the U.S. housing market, including higher mortgage rates and low inventory, Fannie Mae reported a strong first quarter of 2023.
The government-sponsored enterprise (GSE), however, continues to remain significantly undercapitalized.
Fannie Mae reported net income of $3.78 billion, an increase of $2.35 billion, or 165%, from $1.43 billion in the fourth quarter of last year. The total, however, was still 14% below the $4.41 billion in net income reported in the first quarter of last year.
Fannie Mae attributed the increase primarily to a $3.2 billion decrease in its provision for credit losses, which totaled $132 million, compared with $3.3 billion in the fourth quarter of 2022.
Net interest income decreased $306 million in the first quarter from the previous quarter, driven by a decrease in amortization income that was partially offset by an increase in income from its other investments, Fannie Mae said. Amortization income fell due to the continued higher interest-rate environment in the first quarter, which continued to slow refinancing activity and drove lower loan-prepayment volumes, it said.
“Substantially all of the company’s single-family conventional guaranty book of business as of March 31, 2023, had an interest rate below the current market rate, resulting in a low likelihood these loans would refinance at current rates,” the enterprise said in its report.
Still, it increased its overall net worth to $64 billion in the quarter from $60.3 billion at the end of 2022.
Even with that increase, the GSE remains under capitalized. In February 2021, the Federal Housing Finance Agency (FHFA) set a regulatory capital framework for both Fannie Mae and Freddie Mac, but the enterprises are not required to hold capital according to the framework’s requirements until after FHFA’s conservatorship ends.
“As of March 31, we had a $253 billion shortfall of our available capital (deficit) to the adjusted total capital requirement (including buffers) of $184 billion,” Fannie Mae said in a document filed Tuesday with the Securities and Exchange Commission.
That is not significantly different from the shortfall of $258 billion the enterprise cited for the fourth quarter of last year.
Other key highlights of Fannie Mae’s first-quarter:
- It acquired approximately 170,000 single-family purchase loans in the quarter, with more than 45% for first-time homebuyers, while also acquiring about 45,000 single-family refinance loans.
- Single-family conventional acquisition volume was $67.5 billion in the first quarter of 2023, a decrease of 21% from $85.3 billion in the fourth quarter of 2022. The total was the lowest since the third quarter of 2000.
- Refinance acquisition volume was $11 billion in the first quarter, down from $14.5 billion in the fourth quarter of 2022, due to the continued higher mortgage interest-rate environment.
- The single-family serious delinquency rate decreased to 0.59% as of March 31, the lowest level since 2005, from 0.65% as of Dec. 31, 2022.
In a webcast about the earnings Tuesday morning, Fannie Mae CEO Priscilla Almodovar discussed the challenges presented by the first-quarter housing market.
She noted that home prices nationwide grew 1% in the quarter, compared with a 1.2% decline in the fourth quarter of 2022, while home sales continued at their slowest annual pace since 2011. She also said the U.S. weekly average 30-year fixed-rate mortgage rate decreased from 6.42% at the end of 2022 to 6.32% at the end of the first quarter this year, but remained well above where rates were at the same point last year.
“We delivered strong first-quarter results in a volatile market and remain committed to being a source of stability for the housing finance system throughout all economic cycles,” Almodovar said. “We are able to do so because of the changes we've made to improve the resilience of our business, our focus on risk management, and strong liquidity. This allows us to continue to facilitate affordable, equitable, and sustainable access to homeownership and rental housing.”
