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GSEs see solid growth in annual income

Fannie Mae and Freddie Mac each recently released their fourth-quarter 2018 financial results, with the two government-sponsored enterprises (GSEs) reporting solid growth and increased annual income.

FannieFreddieFannie reported a 2018 comprehensive income of $15.6 billion and a fourth-quarter income of $3.2 billion. Freddie, meanwhile, posted a comprehensive income of $8.6 billion and a fourth-quarter income of $1.5 billion.

Both GSEs raised their earnings significantly from the previous year. Fannie’s comprehensive income in 2017 was only $2.6 billion, chiefly due to the effects of that year’s Tax Cuts and Jobs Act. The legislation similarly affected Freddie’s bottom line in 2017, when its comprehensive income was $5.5 billion.

“Ten years after the financial crisis, Freddie Mac’s transformed business model continues to produce solid financial and business performance, with $8.6 billion of profits this year. … And we did it while transferring ever greater amounts of credit risk to the private capital markets and away from taxpayers,” said Donald H. Layton, CEO of Freddie Mac. “We’re serving our customers better every year and delivering good value to the taxpayers who support us during conservatorship. It’s a true success story.”

Although market-related losses pushed down Freddie’s fourth-quarter 2018 comprehensive income by $1.1 billion from the same period in 2017, Fannie’s past fourth quarter looked positively rosy compared to its 2017 counterpart. Again, an immediate impact from tax legislation led to a fourth-quarter 2017 net loss of $6.5 billion, so its positive fourth quarter this year marks a bounce back of sorts.

“We enjoyed a solid quarter based on a strong credit environment in a business that is driven by guarantee fee income rather than the retained mortgage investment portfolio, which continues to decline,” said Hugh R. Frater, CEO of Fannie Mae. “Looking ahead, we will continue working with our customers and other partners on critical challenges, such as increasing the supply of affordable housing and driving digital transformation of the mortgage industry.”

Fannie Mae expects to pay a $3.2 billion dividend to the U.S. Treasury by the end of March. Through fourth-quarter 2018, the company has paid a total of $175.8 billion in dividends to the Treasury since the start of its conservatorship.

Additionally, Fannie provided approximately $512 billion in liquidity to the mortgage market in 2018. The company was the largest issuer of single-family mortgage-related securities in the secondary market for the full year (39 percent market share) and fourth quarter (37 percent) of 2018.

Freddie Mac, on the other hand, projects a $1.5 billion dividend payment to the Treasury in March. Since the start of its conservatorship, the company’s cumulative total dividend payment through 2018 is $116.5 billion.

Freddie provided approximately $396 billion in liquidity to the mortgage market with, as Layton noted, “a strong focus on first-time buyers and affordable rentals.” First-time buyers represented nearly 46 percent of Freddie’s new purchase loans, and approximately 93 percent of the eligible multifamily rental units financed by the company were affordable for families earning at or below 120 percent of their area's median income.

Fannie had a net interest income of $5 billion in the past fourth quarter and $21 billion in 2018, while Freddie posted a net interest income of $2.7 billion during the same quarter and $12 billion for the year.


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