Mortgage

Fannie Mae nearly doubles net income in Q3

The GSE's $4.2 billion haul in Q3 topped the $2.5 billion generated in the prior quarter

Fannie Mae reported a net income of $4.2 billion in the third quarter of 2020, up from its net income of $2.5 billion in the second quarter of this year.

In the second quarter, Fannie Mae’s earnings fell 26% as fee revenue declined during the slowing pandemic months. However, as the housing market bounced back, so did the mortgage giant’s profits.

The increase in the third quarter’s net income was due to higher amortization income driven by an increase in mortgage prepayment activity, a decrease in fair value losses, an increase in net investment gains, and a shift to credit-related income in the third quarter of 2020 from credit-related losses in the prior quarter.

But effects of the pandemic continue to linger. As of the end of the third quarter that ended Sept. 30, 4.1% of Fannie Mae’s single-family guaranty book of business based on loan count and 0.5% if its multifamily guaranty book based on unpaid principal balance were in forbearance, mostly due to the effects of COVID-19.

Compared to the overall housing market, the latest report from the Mortgage Bankers Association shows mortgage forbearances continue to decline, and are currently at 5.9%.

Fannie Mae’s net worth increased from $16.5 billion as of June 30, 2020 to $20.7 billion as of September 30, 2020. Based on its agreement with the U.S. Department of the Treasury, the company may retain quarterly earnings until its net worth reaches $25 billion.

Overall, the company expects COVID-19 to bring its 2020 net income down, coming in lower than 2019’s haul.

To generate additional revenue, the GSEs recently implemented a controversial 50 basis points adverse market fee to help mitigate the loss in revenue. The rate hike on refinancings will kick in Dec. 1.

“Fannie Mae’s current forecasts and expectations relating to the impact of the COVID-19 pandemic are subject to many uncertainties and may change, perhaps substantially,” Fannie Mae said in its earnings release. “It is difficult to assess or predict the impact of this unprecedented event on the company’s business, financial results or financial condition.”

The company reported it provided $982 billion in liquidity during the first nine months of 2020, the highest acquisition volume since the third quarter of 2003. This included $933 billion in single-family liquidity and $49 billion in multifamily financing.

Fannie Mae’s income is also up from the third quarter of 2019, when its net income fell to $3.96 billion.

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