Fannie Mae-No Politics (FNMA)

[Robert from yahoo bd]

TH on 2Q23 Fannie Mae Results: "What’s happening here is a combination of higher interest rates–particularly on liquid assets, where the secured overnight financing rate (SOFR) now exceeds 5.0 percent–and a growing amount of stockholders equity, which hit $69.0 billion last quarter. Financing a mix of mortgages, investment securities and liquid assets at rates ranging between 3 and 5 percent with $69 billion of zero-cost equity adds $2 to $3-plus billion (pre-tax) to Fannie’s bottom line annually, compared with less than $1 billion in 2021, when short term interest rates were close to zero and Fannie’s retained earnings were lower. As long as interest rates stay high, this net income will continue to boost Fannie’s profits, and grow as its shareholders equity grows.

Another welcome surprise in Fannie’s second quarter results was the continued low level of credit losses it is experiencing. Fannie’s net single-family credit losses during the first half of this year totaled only $74 million, or 0.1 basis point of its mortgage assets, and the company currently believes it can cover all future expected single-family credit losses with just $8.0 billion in loss reserves, or 22 basis points of mortgage assets (which it has on its balance sheet). Those $8.0 billion in lifetime expected loss reserves are less than the $9.5 billion in pre-tax net income Fannie’s single-family credit guaranty business earned in the first half of 2023 alone. These data show how strong Fannie’s credit position now is, and stand as further proof that the company needs nowhere near the $184 billion being required of it by the (wholly invented) Calabria capital standard to operate safely and soundly."