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Solid Fannie-Freddie earnings are a foundation for mortgage
giants' next
act
MarketWatch
10:05 AM ET
By Andrea Riquier
Trump's
pick for head of the regulatory agency overseeing Fannie and
Freddie, Mark Calabria, faces Senate Banking Committee
Fannie Mae(FNMA) and Freddie Mac(FMCC) on
Thursday reported earnings that reflected a healthy, yet
slowing, housing market, even as weighty questions about
their future swirl.
The two enterprises are at
the heart of the American housing finance system: they buy
mortgages from banks and other lenders, enabling lenders to
extend credit
(http://www.marketwatch.com/story/wells-fargo-readies-its-fir
t-post-crisis-mortgage-bond-2018-10-11) for longer periods
than would be possible if they had to keep the loans on
their own balance sheets, and, presumably, open up the
housing market to a larger swath of the population.
Throughout 2018, the two companies together funded
approximately 3.2 million mortgages.
In the
fourth quarter, Fannie had net income of $3.2 billion
(http://www.fanniemae.com/resources/file/ir/pdf/quarterly-ann
al-results/2018/q42018_financial_supplement.pdf), and
Freddie had $1.5 billion
(http://www.freddiemac.com/investors/financials/pdf/2018er-4q
8_release.pdf). The two enterprises are still in government
conservatorship, as they have been since the 2008 financial
crisis, and will sweep those profits over to the U.S.
Treasury in March, while continuing to retain a slim capital
buffer of $3 billion each.
It is difficult to
compare the companies' financial results to the year-earlier
quarter because that's when changes in the tax laws left
both with hefty accounting losses. Excluding the impact of
those paper losses, Freddie had comprehensive income of $2.1
billion in the fourth quarter of 2017, while Fannie had
pre-tax income of $5.0 billion in that quarter.
The so-called "net worth sweep" is an arrangement devised in
2012 that directed the two companies to divert profits to
taxpayers, but left the door open for them to take capital
draws in any quarter in which they had a loss, as Fannie did
last year
(http://www.marketwatch.com/story/fannie-mae-to-turn-to-taxpa
ers-after-65-billion-loss-2018-02-14). It is possible that
this quarter could be the last time the sweep takes place.
See also:To free Fannie and Freddie, their
regulator may bypass do-nothing Congress
(http://www.marketwatch.com/story/to-free-fannie-and-freddie-
heir-regulator-may-bypass-do-nothing-congress-2018-06-21)
On Thursday, the Trump administration's pick for
head of the regulatory agency overseeing Fannie and Freddie,
Mark Calabria, will face the Senate Banking Committee. As
MarketWatch was first to report
(http://www.marketwatch.com/story/fhfa-acting-director-discus
ing-plan-to-take-fannie-and-freddie-out-of-conservatorship-20
9-01-18), the interim director of the regulator, the Federal
Housing Finance Agency, has already begun working with
Treasury to lay out a long-term vision for the American
housing finance system, finally freeing the two companies
from conservatorship.
If he is approved,
Calabria's responsibility will include two companies that
look vastly different than the entities that helped plunge
the U.S. economy into turmoil about a decade ago. In the
fourth quarter, Fannie's serious delinquency rate was just
0.76%, and Freddie's was 0.69%, both near historical lows.
Both companies continue to experiment with additional ways
of selling slices of their portfolio to private-market
investors, in order to spread the risk more broadly. And
they continue to work toward the issuance of a single bond,
a step that aligns their fortunes more closely, rather than
intensifying the competition between them.
Read:As Fannie-Freddie reform gets underway, here are the
three big questions for the housing market
(http://www.marketwatch.com/story/as-fannie-freddie-reform-ge
s-underway-here-are-the-three-big-questions-for-the-housing-m
rket-2019-01-29)
The enterprises are achieving
those goals even as they help Americans access stable
housing. Freddie's earnings noted that first-time homebuyers
made up 46% of mortgage purchase loans in 2018, while nearly
all of the apartment rental units it helped finance were for
low- and moderate-income Americans. Fannie touted its
commitment to "providing support for both affordable and
workforce housing," which it accomplished by having 56% of
its mortgage funding go to low- and moderate-income
households.
Still, big questions remain: what
kind of reforms will FHFA and Treasury implement? Will
interest rates behave at the same that the revamped agencies
are getting their footing again? Ten years into an economic
expansion and seven years into the expanding housing cycle,
how will market conditions hold up?
"I believe we
are truly at a critical juncture in housing finance policy,"
Calabria said in prepared remarks
(https://www.banking.senate.gov/imo/media/doc/Calabria%20Test
mony%202-14-19.pdf) that he'll deliver to lawmakers.
"Families across America face heavy burdens making their
rent or mortgage payments in many cities, towns and states,
as well as the unique barriers faced in our rural and tribal
communities. I also strongly believe that shelter is one of
the most critical of basic needs facing any family. Whether
it is rented or owned, American families need an affordable
place to call home."
See also:Congress wouldn't
do it, so Fannie and Freddie reformed themselves
(http://www.marketwatch.com/story/congress-wouldnt-do-it-so-f
nnie-and-freddie-reformed-themselves-2017-08-03)
-Andrea Riquier; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
This is crazy
Hi Burnt Toast. This is the year.
Nice call, let's see if it holds up
Agreed
Another joe light pipe dream
Not to defend him but he did say he was not going to cover FNMA while it’s in consolation mode.
You probably won’t sell when it hits $5 again
Not having a trading plan and then sticking to the plan is why people end up unhappy bag holders.
You missed another chance to get out at 3 last week. You could be getting back in now with free shares.
Yes I mixed that up with the 2014 run on a previous post
What about .80 to 5+ in less than a month in May 2013? That was a run!
Back to the slow drip
That would allow more people to get GSE loans
Didn’t they just raise the gse footprint yesterday?
Wow you either have no idea what you are talking about or are a bold faced lier.
That’s great. Thanks for posting it
What was that pop in the last 10 min, a prelude of tomorrow?
This is wsj I take it with a grain of salt
I study charts. What indicators showed a pull back from $3 to $2?
Trump Won’t Act Alone to Get Fannie, Freddie Out of Government Control
https://www.wsj.com/articles/trump-administration-to-work-with-congress-on-fannie-freddie-overhaul-11548785269
Yes. I was happy getting some 2.68’s. Oh well.
No more meat on the bone? Blue says we're going to $2
Buy on rumor sell on news?
Panicked sellers chasing the price now quarantined. This is how you end up a bitter bag holder.
Nice picked up some 2.68's. I hope Blue is wrong.
Nice work. No one ever talks about that option.
About to be 0 - 2 for this year
I would love to see the look on Water's face. Oh wait, maybe I wouldn't.
"Hard to Borrow" flag is back - this is great news, thanks!
Traders hoping to load up again
You had your chance today. It was well over $3 for a couple hours today. You don’t really want to sell and I don’t blame you. Thus could be $5 in a week or two.
Bloomberg trying to take us down again. They're the new John Carney.
Maybe the man with the (FNMA) hole in his pocket?
No, Confucius says, "man with hole in pocket, feeling cocky today"
Go FNMA
You're a man unafraid of "pop and lock" lol
Depends on the size of their margin account but common sense would have covered during the drop this morning.
He's' O-fer this year so far
Heh, heh. It's the day traders causing the whipsaw