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GSEs set aside billions to cover home value declines

Net income and revenue were down for both Fannie Mae and Freddie Mac in the third quarter

Revenue and net income were both down for Fannie Mae and Freddie Mac in the third quarter, and the two government sponsored entities (GSEs) expect the housing market to deteriorate further in the fourth quarter.

Collectively, the GSEs have set aside $4.3 billion in credit loss builds to account for a decline in home values in the fourth quarter, according to earnings reports from the housing finance giants.

Fannie Mae posted net income of $2.4 billion in the third quarter, a $2.2 billion drop from the second quarter, which represented a 47.6% decline.

“The largest driver of this decrease was an increase in credit-related expense,” the company said in a statement Tuesday. “Credit-related expense for the third quarter was primarily driven by lower actual and projected home prices.”

“We expect additional home price declines in the fourth quarter of 2022,” Fannie’s interim CEO, David Benson, said on the quarterly earnings call Tuesday morning.

Fannie expects national home price declines of 1.9% in the second half of 2022 and a further decline of 1.5% next year. It has set aside $2.5 billion for credit losses.

Revenue for Fannie Mae in Q3 checked in at $7.2 billion, an 8% decrease from the second quarter. The company’s single family business generated $5.9 billion in net income, a 10% drop from the $6.57 billion earned the prior quarter.

Fannie acquired $117.7 billion in single family mortgages in the third quarter, a 32% sequential drop. Its net worth increased to $58.8 billion in the third quarter. The company’s net worth was $47.4 billion at the end of 2021.

Freddie Mac fared similarly in the third quarter. The smaller of the two GSEs reported net income of $1.3 billion, down from $2.45 billion in the second quarter. Net revenues checked in at $5.18 billion, down from $5.4 billion in the second quarter. Overall, Freddie bought $121 billion in single-family mortgages in the third quarter, which was down 60% year over year.

In its third quarter statement, Freddie said it had set aside $1.8 billion for credit losses, which are primarily driven by deterioration in housing market conditions, including lower observed and forecasted house price appreciation.”

At the end of the third quarter, Freddie Mac’s net worth was $35.2 billion, up from $28 billion at the end of 2021.

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