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Fannie Mae’s 1Q Earnings Fall; Officials Fear ‘Modest Recession’

David Krechevsky
May 03, 2022

Reported net income of $4.4 billion in the first quarter, down 15% from fourth quarter of 2022 and down 12% from first quarter of last year.

Fannie Mae this morning reported solid earnings for the first quarter of 2022, but officials cautioned they expect the U.S. economy to face a  “modest recession” in the second half of the year.

The Washington, D.C.-based government-sponsored enterprise reported net income of $4.4 billion in the first quarter, down 15% from $5.2 billion in the fourth quarter of 2021 and down 12% from $4.99 billion in the first quarter of last year. Officials said the decline in net income was driven primarily by a shift from credit-related income to credit-related expense and a shift from investment gains to investment losses, partially offset by a shift from fair value losses to fair value gains.

The enterprise, however, saw its net worth soar to $51.8 billion in the first quarter, up 71% from $30.23 billion in the same quarter last year. 

 “Fannie Mae’s solid first quarter results were set against a backdrop of rising interest rates, inflationary pressures, robust home price appreciation, and geopolitical tensions,” said David C. Benson, president and interim CEO. “We continue to focus on the needs of renters and homeowners as they navigate these challenges and on prudently managing our risk.” 

During a webcast today following the release of the results, both Benson and Chryssa C. Halley, Fannie Mae’s executive vice president and chief financial officer, said they expect a modest economic downturn in the second half of this year.

Benson, in fact, said Fannie Mae sees “increasing odds for a modest recession,” which he said will affect the housing market. “We expect home sales, prices and originations to cool.”

Still, he said Fannie Mae does not “expect a housing downturn of the severity or duration seen in 2008,” stating that economic conditions now are significantly different. He said mortgage credit quality is stronger, and added that “mortgage services are much better equipped to help homeowners.”

He did acknowledge, however, that a “fair amount of uncertainty” remains, citing the still-to-be-determined pace of economic tightening by the Federal Reserve, the COVID-19 pandemic, and the war in Ukraine among other factors.

Fannie Mae said it acquired approximately 312,000 home purchase loans and 487,000 refinance loans during the first quarter, with $255 billion in liquidity provided to the single-family and multifamily mortgage markets in the quarter. That included $104 billion of single-family home purchase acquisitions, of which nearly 50% were for first-time homebuyers, it said.

Single-family conventional acquisition volume was $239.5 billion in the quarter, down 16% from $284.8 billion in the fourth quarter of 2021. Refinance acquisition volume was $135.5 billion in the first quarter, a decline of 23.7% from $177.6 billion in the fourth quarter of 2021. Both purchase and refinance volumes decreased quarter-over-quarter due to the rising interest rate environment, officials said.

New multifamily business volume, meanwhile, was $16 billion in the first quarter. The Federal Housing Finance Agency (FHFA) established a 2022 multifamily volume cap of $78 billion, of which 50% must be mission-driven, focused on certain affordable and underserved market segments, and 25% affordable to residents earning 60% or less of area median income, Fannie Mae said.

Fannie Mae noted that mortgage interest rates increased 1.56 percentage points during the first quarter, from 3.11% as of Dec. 31, 2021, to 4.67% as of March 31, 2022, the fastest increase since 1994.

Fannie Mae’s results were released five days after Freddie Mac posted its first quarter results. Freddie Mac, the McLean, Va.-based government-sponsored enterprise, last week reported net income of $3.8 billion for the quarter, up 38% from the fourth quarter and up 37% from $2.8 billion in the first quarter of last year.

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