Fannie Mae reported today that the company had an annual net income of $17.2 billion for FY 2012 compared to a net loss of $16.9 billion in FY 2011. This was the largest annual income in the company’s history. The fourth quarter net income was reported at $7.6 billion which was also the highest quarterly total ever reported by Fannie Mae and represented 44 percent of the net income for the entire year.
Fannie Mae said the improvement in both the full-year and quarterly numbers was due primarily to improved credit results driven by a decline in serious delinquency rates, higher home prices, higher sales prices from the company’s owned real estate (REO) and its resolution agreements with Bank of America.
Net interest income for the fourth quarter was $5.56 billion and for the year, $21.50 billion compared to $5.32 billion in the third quarter and $19.28 billion in 2011. The increase in net interest income in the fourth quarter was driven by an increase in income from guaranty fees and accelerated amortization income from a high volume of prepayments. Net revenues increased $203 million quarter over quarter and 2.54 billion year over year. Comprehensive income was $18.8 billion for the year compared to $(16.41) billion for FY 2011 and $7.8 billion for the fourth quarter up from $(2.93) billion in the third quarter.
Fannie Mae’s net income for the year was impacted by its resolution agreements with Bank of Americarelated to repurchase requests and compensatory fees which resulted in the recognition of $1.3 billion in pre-tax income for 2012. The company expects to recognize additional net income in the first quarter of 2013 and beyond relating to these agreements.
Provisions for credit losses which were $(26.72) billion in 2011 turned to a benefit of $852 million in 2012 due entirely to fourth quarter activity. Provisions in the third quarter were $(2.08) billion and the benefit in the four quarter was $1.89 billion.
The company’s total loss reserves decreased to $62.6 billion as of December 31, 2012 from $76.9 billion as of December 31, 2011. The company expects the trends of improving home prices and declining single-family serious delinquency rates will continue. As a result, the company believes that its total loss reserves peaked as of December 31, 2011. Accordingly, the company does not expect total loss reserves to increase above $76.9 billion in the foreseeable future.
The company’s book of business now consists of a majority of loans (66 percent) originated since 2009 and with a much stronger credit profile than loans originated prior to that date which now comprise a third of the portfolio. The delinquency rate, which has shrunk steadily since the first quarter of 2010 when it stood at 5.47 percent, is now 3.29 percent.
The company’s single-family foreclosure rate was 0.99 percent for the full year of 2012. It acquired 41,112 single-family REO properties, primarily through foreclosure, in the fourth quarter of 2012 compared with 41,884 in the third quarter of 2012. As of December 31, 2012, the company’s inventory of single-family REO properties was 105,666, compared with 107,225 as of September 30, 2012. The carrying value of the company’s single-family REO was $9.5 billion as of December 31, 2012.
The company paid a total of $11.6 billion in dividends to the Department of the Treasury under the senior preferred stock purchase agreement between the two entities and did not request a draw from Treasury for the fourth quarter. To date Fannie Mae has received a total of $116.1 billion in draws from the Treasury while paying $31.4 billion in dividends. Under terms of the stock purchase agreement dividends cannot be used to offset draws so Treasury still maintains a 117.0 billion liquidation preference in Fannie Mae. The company did not request any draws from Treasury in 2012.
In August 2012, the terms governing the company’s dividend obligations on the senior preferred stock were amended. The amended senior preferred stock purchase agreement does not allow the company to build a capital reserve. Beginning in 2013, the required senior preferred stock dividends each quarter will equal the amount, if any, by which the company’s net worth as of the end of the preceding quarter exceeds an applicable capital reserve amount. The applicable capital reserve amount will be $3.0 billion for each quarter of 2013 and will be reduced by $600 million annually until it reaches zero in 2018.
“Our financial results improved significantly in 2012 and we expect our earnings to remain strong over the next few years,” said Timothy J. Mayopoulos, president and chief executive officer. “We have taken a number of actions since 2009 to manage our legacy book of business, build a healthy new book of business with responsible underwriting standards, price appropriately for risk, and reduce uncertainty by resolving outstanding issues. These actions have helped to strengthen our financial performance and to support the housing recovery by enabling families to buy, refinance, or rent a home even during the housing crisis.”