Falling Mortgage Rates Helped Fannie, Freddie Grow Loan Volume, Net Worths

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Falling interest rates helped mortgage giants Fannie Mae and Freddie Mac boost third-quarter purchase loan volume by business by $15 billion and continue to grow their net worths while staying profitable.

Together, Fannie and Freddie provided backing for $164 billion in purchase mortgages in Q3, up 10 percent from Q2 and 6 percent from a year ago, while growing their combined net worths to $147 billion, up 17 percent from Jan. 1.

Fannie Mae’s $4.0 billion in Q3 net income represented a 14 percent decline from a year ago, but marked the company’s twenty-seventh quarter of consecutive, positive results, CEO Priscilla Almodovar noted.

“This demonstrates our continued progress in transforming our business and strengthening our balance sheet, so that we fulfill our mission in any economic environment,” Almodovar said, in a statement.

Fannie Mae backed 231,000 single-family purchase loans during the quarter, about half of which were taken out by first-time homebuyers, and an additional 50,000 single-family refinance loans.

Freddie Mac backed 235,000 single-family purchase loans and 49,000 refis in Q3. The 284,000 single-family loans the company backed represented 13 percent growth from a year ago.

That growth helped drive Freddie Mac’s Q3 revenue up 3 percent from a year ago, to $5.8 billion, with net income up 16 percent, to $3.1 billion.

Diana Reid

“Freddie Mac delivered another strong quarter,” CEO Diana Reid said, in a statement. “The company helped 415,000 families buy, refinance or rent a home, including 110,000 first-time homebuyers. We expanded support for renters, including by establishing a new grace period for rent payments. We also are providing relief to homeowners and resources for renters affected by recent hurricanes.”

Freddie surpasses Fannie in purchase volume

Source: Fannie Mae and Freddie Mac earnings reports.

While Fannie Mae has traditionally been the bigger company, Freddie Mac is giving its rival a run for its money this year.

During the first nine months of the year, Freddie Mac backed $211 billion in purchase loans, surpassing Fannie Mae’s $208 billion total by $3 billion.

Fannie Mae backed $93 billion in new mortgages during Q3, up 8 percent from Q2 and 4 percent from a year ago. New purchase loan business was up 7 percent from Q2 to Q3, to $80 billion, while refinancings grew by 18 percent, to $13 billion.

Freddie Mac surpassed its rival in both categories, guaranteeing $98 billion in mortgages during Q3, up 15 percent from the previous quarter and Q3 2023.

At $84 billion, Freddie Mac’s purchase loan business grew by 13 percent from Q2 to Q3, while new refis were up 27 percent, to $14 billion.

Mortgage portfolio growth flattens

The slower pace of originations as mortgage rates began climbing in 2022 has flattened growth in Fannie and Freddie’s single-family mortgage guarantee portfolios.

Together, Fannie and Freddie were guaranteeing $6.66 trillion in single-family mortgage debt as of Sept. 30. While Freddie’s single-family mortgage guarantee portfolio has grown by 1 percent this year, to $3.08 trillion, Fannie’s has shrunk by the same proportion, to $3.63 trillion.

Steady stream of profits building net worth

At $4 billion, Fannie Mae’s net income was down 10 percent from Q2 and 14 percent from a year ago.

The $440 million drop in profits from Q2 to Q3 and $655 million from a year ago was primarily driven by a decrease in fair value gains on derivatives, trading securities and other financial instruments that Fannie Mae uses to hedge risk, and a decrease in benefit for credit losses, the company said in its quarterly report to investors.

While Fannie Mae benefited from $447 million in fair value gains in Q2, fair value gains added only $52 million to the bottom line in Q3. Similarly, the benefit for credit losses totaled $300 million in Q2, but only $27 million Q3.

Freddie Mac’s $3.1 billion in Q3 profits represented an 11 percent increase from Q2 and a 15 percent improvement from a year ago.

Freddie Mac attributed much of the $420 million year-over-year increase in profits to a decline in non-interest expense. In Q3 2023, the company recognized $313 million in additional expenses for an adverse judgment in a class action lawsuit by investors.

The lawsuit by investors in Fannie and Freddie challenged “net worth sweeps” of the mortgage giants’ profits to the U.S. Treasury after the companies were placed in conservatorship in 2008 during the Great Recession of 2007-09.

Combined net worths hit $147 billion

With Fannie and Freddie having repaid a $191 billion taxpayer bailout, their Preferred Stock Purchase Agreements (PSPAs) with the U.S. Treasury Department have been amended to allow both companies to retain all of their earnings.

To pave the way for an eventual exit from government conservatorship, the mortgage giants have been gradually building their net worths.

At $90.5 billion, Fannie Mae’s net worth as of Sept. 30 is up 16 percent from Jan. 1.

Freddie Mac boosted its net worth by 18 percent over the same period, to $56.4 billion.

That’s still short of what Fannie and Freddie’s federal regulator, the Federal Housing Finance Agency, believes would be necessary to weather another big downturn.

“While earnings and net worth can absorb potential losses that arise from credit risk and earnings volatility, both Enterprises still exhibit accumulated deficits (negative retained earnings),” FHFA detailed in its annual report to Congress in June.

Fannie and Freddie’s capital positions, “are improved from 2008, but are not robust enough to prevent a Treasury draw in the event of a large loss,” regulators said.

Based on their finances at the end of 2023, FHFA estimates that Fannie and Freddie would together be required to hold a combined minimum of $319 billion in adjusted total capital to satisfy their risk-based capital, leverage ratio and capital buffer requirements.

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Email Matt Carter