The FHFA is taking steps to free Fannie Mae from government conservatorship as the company posts big profits.
On the heels of our first-ever Agent Appreciation month, Inman is leaping into February with our Residential Finance theme month. Join us as we investigate how buying and selling a home is changing, from companies backing consumers in new ways to integrated services that handle the entire transaction.
Fannie Mae on Thursday reported a net income of $4.4 billion in the fourth quarter of 2019 and an overall net income of $14.2 billion in 2019. The company’s 2019 total income was a slight decrease over the $15.9 billion it posted in 2018.
“Our results further demonstrate the strength and earnings power of Fannie Mae’s business in 2019, including our ability to manage risk and generate solid returns in both our single-family and multifamily business lines,” Fannie Mae CEO Hugh Frater said in a statement. “We continue to fulfill our mission to provide liquidity to the mortgage market and meet our housing goals while growing our guaranty fee income and managing expense growth.”
The company begins the year with a total net worth of $14.6 billion and, based on current agreements with the federal government, is allowed to retain quarterly earnings until the company’s net worth reached $25 billion.
Fannie posted $22.1 billion in net revenue for the year of 2019, a slight increase over 2018’s net revenue of $21.9 billion.
The Federal Housing Finance Administration (FHFA) announced on Feb. 3 it hired Houlihan Lokey, an investment banking firm, to serve as a financial advisor to assist in the development and implementation of a roadmap to end the government conservatorships of both Fannie Mae and Freddie Mac.
The two companies have been under government conservatorship since the 2008 housing crash, when they were bailed out by taxpayers to the tune of $187.5 billion, but have since paid that back and become profitable once again.
FHFA Director Mark Calabria has also argued that the charters under which Fannie Mae and Freddie Mac operate should be open to private competition. Fannie Mae is able to provide loans to low- and moderate-income Americans, not by offering them directly, but by guaranteeing loans from other banks. Fannie Mae also packages mortgages, guarantees them and re-sells them as mortgage-backed securities.
On an earnings call, Fannie Mae Chief Financial Officer Celeste Brown noted several steps the company is taking to prepare for life post-conservatorship.
“We are focused on making changes that position us as a return-oriented company,” Brown said. “We are taking actions to prepare for, and or facilitate, a conservatorship exit as well as to ensure we are ready to operate in a post-conservatorship environment.”
“While we cannot be certain the company will exit FHFA conservatorship, the actions we are undertaking position us to be stronger, regardless of the outcome of the exit process,” Brown added.
Those actions include working to enhance core technology, system architecture, the company’s data environment and business processes. The company plans to implement hedge accounting — a different standard to report gains and losses — as well as more comprehensively manage administrative expenses, drive improvements to the underwriting and pricing engine and building on the environmental, social and governance principals guiding the company.