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Fannie, Freddie report strong finishes to 2019

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Inside the Beltway
Friday, February 21, 2020
The strong housing market in 2019 lifted business for both Fannie Mae and Freddie Mac, the companies recently reported.

For Fannie Mae, the company registered profit gains and a 9 percent gain in net revenues in the fourth quarter, driven by higher investment gains and fair value gains, as well as higher single-family mortgage prepayment activity, as continued low mortgage rates resulted in higher refinance activity.

All of that drove Fannie’s fourth-quarter comprehensive income up $300 million from the third quarter to $4.3 billion. Overall, the company registered $14 billion in comprehensive income for the year, with profits increasing $110 million.

For Freddie Mac, comprehensive income in the fourth quarter rose $600 million from the previous quarter to $2.4 billion. That pushed the company’s annual comprehensive income to $7.8 billion.

“We continue to improve our single-family and multifamily credit risk transfer programs in 2019 and investor demand for these products has remained strong,” Fannie CEO Hugh Frater said on a call with media, according to a transcript from Seeking Alpha. “These risk-sharing tools increase our safety and soundness, bring private risk-bearing capital into the market and give us an important capital management tool.”

Single-family business drove both companies higher. Fannie reported profits in the single-family business rising nearly $500 million in the fourth quarter from the third quarter, funding more than $650 billion for the year. Freddie said it provided $558 billion in funding to the mortgage market, helping nearly 2.6 million families to buy or rent a home.

“We served approximately 950 regional and community-oriented single-family lenders. We purchased nearly 1.8 million home loans including loans to nearly 395,000 first-time homebuyers and we financed 809,000 rental units – 94 percent of which were affordable to families earning at or below 120 percent of area median income,” Freddie Mac CEO David Brickman said on a call with media, according to a Seeking Alpha transcript.

Frater discussed building on the company’s strengths in 2020.

“We are focused on using our capital more efficiently while operating safely and soundly. We will continue building our digital capabilities to support positive innovation that will benefit the mortgage markets and the consumers who rely on them,” he said. “We believe increasing our digital agility can help our lender customers advance the transformation of mortgage lending, homebuying, renting and housing itself with the aim of reducing cost and complexity for consumers.”

Digital mortgage expansion also was a theme for Brickman.

“We also made progress in our ongoing digital transformation in 2019 helping to improve our efficiency and increase our operational risk. We have made significant investments in improving our technology, adding new collaboration and productivity tools that have changed the way we work as a company,” he said. “We also adopted an agile environment for product development that brings IT and business together to be faster, smarter and more collaborative.

“The results include integrated software applications such as our single family’s Asset and Income Modeler, or AIM, which automates the process of borrower data verification. AIM makes it possible for lenders to close loans faster and creates a better financing experience for homebuyers. The automation of this process also helps to remove subjectivity from borrower asset and income assessments, reduces errors, helps to calculate risk more easily and accurately.”

Finally, Frater pointed out that Fannie Mae would continue to pursue purpose as well as profitability as it works to prepare for leaving conservatorship.

“The future we envision will also be one where we lead in the environmental, social and governance responsibilities that are expected of today’s leading companies,” he said. “By our charter and by our choice, we are a purpose-driven company. In the years to come, we will build on this essential aspect of our company, both because it is the right thing to do and because it will help us attract global capital to meet America’s biggest housing challenges.”

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