Fannie Mae (FNMA (ST:FNMA)) has announced a net income of $4.5 billion for the second quarter of 2024, marking a slight increase from the previous quarter's $4.3 billion. This financial performance has contributed to the company's growing net worth, now at $86.5 billion, and its ongoing efforts to reduce its capital shortfall. Amidst a challenging economic and housing market environment, Fannie Mae has continued to provide substantial liquidity to the housing market, aiding thousands of households in purchasing, refinancing, or renting homes. The company's leaders highlighted both the successes and the potential risks ahead, as well as their commitment to advancing the nation's housing market through research, innovation, and risk management.
Key Takeaways
- Fannie Mae's Q2 net income rose to $4.5 billion, up from $4.3 billion in Q1.
- The company's net worth reached $86.5 billion, strengthening its financial stability.
- Fannie Mae provided $95 billion of liquidity to the housing market, assisting 330,000 households.
- Home affordability remains a challenge, with only 19% of consumers believing it's a good time to buy.
- The company issued over $9 billion in multifamily social bonds to support affordable housing.
Company Outlook
- Fannie Mae expects affordability challenges to persist throughout the year.
- The company's economists forecast two Federal Reserve rate cuts later in the year.
- Home prices are projected to rise 6.1% in 2024, with single-family mortgage originations growing to approximately $1.7 trillion.
- Multifamily market origination volumes for 2024 are expected to range between $245 billion and $315 billion.
Bearish Highlights
- High interest rates and low inventory limit the number of potential homebuyers.
- Multifamily property values have declined nearly 20% since July 2022.
- Elevated interest rates could hinder borrowers' ability to refinance multifamily loans.
Bullish Highlights
- The company saw a $300 million benefit for credit losses in Q2, an increase from Q1.
- Single-family loan acquisitions increased by 38% due to seasonal purchase activity.
- Single-family serious delinquency rates remained near historically low levels.
Misses
- Despite an increase in loan acquisitions, overall acquisition volumes were low due to market conditions and competition.
- Multifamily acquisitions in the first half of 2024 declined compared to the same period in 2023.
Q&A Highlights
- The Q&A session addressed concerns about the impact of a slowing economy on the credit performance of loans in Fannie Mae's single-family guarantee book.
- Fannie Mae's leadership discussed the potential for an increase in single-family serious delinquency rates due to economic factors.
Fannie Mae's second quarter performance reflects a resilient housing finance system amid economic headwinds. The company's efforts to support the housing market and its focus on risk management are critical as it navigates through a period of high interest rates and affordability challenges. Fannie Mae's leaders emphasized their dedication to mission-driven work, providing insights into the current state of the housing market and underscoring the importance of innovation and outreach to support homeownership. As the company looks ahead, it remains cautious yet optimistic, with continued attention to market conditions and consumer needs.
InvestingPro Insights
Fannie Mae (FNMA) has demonstrated resilience in its Q2 performance, with an increase in net income and a strong contribution to liquidity in the housing market. To further understand the company's financial health and market position, let's delve into some key metrics and insights from InvestingPro.
InvestingPro Data:
- Fannie Mae's market capitalization stands at $7.55 billion, reflecting the company's substantial presence in the housing finance sector.
- With a P/E ratio of 3,142.86, the company's earnings valuation is significantly high, which may suggest investor confidence in its future growth or potential overvaluation.
- The company has experienced robust revenue growth, with a 38.52% increase over the last twelve months as of Q1 2024, indicating a strong performance in generating income.
InvestingPro Tips:
- Fannie Mae operates with a significant debt burden and may face challenges in making interest payments on this debt, which is an important consideration for investors assessing the company's financial risk.
- Analysts predict that Fannie Mae will be profitable this year, and net income is expected to grow, suggesting a positive outlook for the company's earnings potential.
To gain further insights into Fannie Mae's financials and market performance, including additional InvestingPro Tips, visit https://www.investing.com/pro/FNMA. There are 10 more tips available on InvestingPro that can provide a deeper analysis of the company's prospects. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and stay ahead with comprehensive investment research and real-time data.
Full transcript - Ferronordic Machines (FNMA) Q2 2024:
Operator: Good day, and welcome to the Fannie Mae Second Quarter 2024 Financial Results Conference Call. At this time, I will now turn it over to your host, Pete Bakel, Fannie Mae's Director of External Communications.
Pete Bakel: Hello, and thank you all for joining today's conference call to discuss Fannie Mae's second quarter 2024 financial results. Please note this call includes forward-looking statements, including statements about Fannie Mae's expectations related to economic and housing market conditions, the future performance of the company's book of business, and the company's business plans and their impact. Future events may turn out to be very different from these statements. The forward-looking statements section in the company's second quarter 2024 Form 10-Q filed today and in the Risk Factors and Forward-Looking Statements sections in the company's 2023 Form 10-K filed on February 15, 2024, describe factors that may lead to different results. A recording of this call may be posted on the company's website. We ask that you do not record this call for public broadcast and that you do not publish any full transcript. I'd now like to turn the call over to Fannie Mae, President and Chief Executive Officer, Priscilla Almodovar; and Fannie Mae, Chief Financial Officer, Chryssa C. Halley.
Priscilla Almodovar: Welcome, and thank you for joining us. I'll start by spending a few minutes on the economic environment before speaking to our financial and mission performance for the second quarter of 2024. After that, our Chief Financial Officer, Chryssa Halley will discuss our quarter results in more detail. Now turning to the economy. While inflation slowed in the second quarter, a higher for longer interest rate environment continued as the Fed has made clear that incoming data will determine the pace of rate cuts. The 30-year fixed rate mortgage rate averaged 7% during the quarter and we estimate that home prices increased 3% during the quarter and 5.2% since the start of the year. Affordability concerns together with a low inventory of homes for sale, continued to limit the number of buyers willing and able to buy a home even as listings have begun to rise. You can see this in our July Home Purchase Sentiment Index where only 19% of consumers say that it's a good time to buy a home. In many parts of the country, affordability remained a challenge for renters too. Nationally, we estimate rents grew about 100 basis points in the second quarter compared to 25 basis points in the first quarter. Our economists expect that similar affordability challenges will persist for the remainder of the year. Now turning to our second quarter financial results. We reported $4.5 billion in net income compared to $4.3 billion in the first quarter. As a result, we continue to reduce our capital shortfall and build our net worth. Our net worth reached $86.5 billion, further strengthening our financial stability. We provided $95 billion of liquidity to the single-family and multifamily markets in the second quarter. This helped 330,000 households buy, refinance, or rent a home. This included approximately 72,000 units of multifamily rental housing, a significant majority of which were affordable to households earning at or below 120% of area median income. We also helped 108,000 first-time homebuyers to buy a home. I'm proud of this work and our many efforts to advance the nation's housing market. This includes publishing informative research and insights. For example, we recently refreshed our mortgage understanding study, last completed in 2018. Today's market is very different and tougher for homebuyers. Our study shines a light on consumers' thoughts about home buying, what they know about today's mortgage process, and misconceptions they may have. Two key findings are: One, while the percentage of consumers who feel it is a good time to buy a home is historically low, the dream of homeownership remains high. And two, the knowledge of what it takes to qualify for a mortgage is mixed. This is a call to action for all of us to continue to work together to make the mortgage process clearer, simpler, and smarter and to further support consumers in their path to homeownership through outreach and innovation. That's why Fannie Mae continues to innovate to reduce key obstacles that many consumers face, such as limited credit history, and high upfront costs. In addition, we continue to advance innovative ways to connect global capital to U.S. housing. In the first half of this year, we issued over $5 billion in single-family social bonds and over $4 billion in multifamily social bonds. These bonds help mortgage-backed security investors allocate their capital in support of affordable housing and underserved borrowers' end markets. I encourage you to learn more about our work, which is detailed in our 2023 Corporate Responsibility and Impact Report we released earlier this month. Our actions to provide liquidity, stability, and affordability to the U.S. housing market are grounded in our mission and made stronger by our focus on risk and controls. And our improved financial stability enables us to be a reliable source of mortgage credit for America's homeowners and renters. Before I turn it to Chryssa, I want to thank my colleagues across Fannie Mae, who come to work every day with a shared commitment to our mission. Now Chryssa will address our quarter two results in more detail.
Chryssa Halley: Thank you, Priscilla, and good morning. As Priscilla mentioned, we reported $4.5 billion in net income in the second quarter, a $164 million increase compared to the first quarter of this year. Our second quarter revenues remained strong at $7.3 billion, thanks to healthy guarantee fee income. We saw a benefit for credit losses this quarter of $300 million compared to the $180 million benefit we recorded in the first quarter. This was driven by a release in single-family reserves, partially offset by an increase in multifamily reserves. The reduction in single-family reserves was primarily due to increases in actual and forecasted single-family home prices, partially offset by a provision on newly acquired single-family loans. The increase in multifamily reserves was due primarily to continued declines in actual and near-term projected property values and the impact of new 30-day loan delinquencies. In our single-family business, we acquired $86 billion of single-family loans in the second quarter. This was a 38% increase compared to the prior quarter, consistent with seasonal purchase activity. Despite this increase, our acquisition volumes remained low, reflecting low overall market activity, and increased competition. Not surprisingly, given the interest rate environment, 87% of these acquisitions were purchased loans. The credit profile of our single-family acquisitions in the second quarter remained healthy, with a weighted average original loan-to-value ratio of 78% and a weighted average credit score of 759. Further, the credit profile of our single-family book remains strong with a weighted average mark-to-market loan-to-value ratio of 50% and a weighted average credit score at origination of 753. Our single-family serious delinquency rates remained near historically low levels as of June 30 at 48 basis points compared to 51 basis points in the prior quarter. A slowing economy may impact the credit performance of loans in our single-family guarantee book, which could lead to an increase in our single-family serious delinquency rate. Turning to single-family credit risk transfer, we executed four transactions in the second quarter between our Connecticut Avenue Securities or CAS and Credit Insurance Risk Transfer programs, transferring a portion of the credit risk on approximately $65 billion of unpaid principal balance at the time of the transactions. In Q2, we also repurchased certain CAS notes and terminated two CAS deals that provided minimal credit protection, reducing lifetime expenses associated with these transactions. We paid $363 million in premiums during the quarter on our outstanding single-family credit risk transfer transactions. In our multifamily business, we acquired approximately $9 billion in multifamily loans this quarter, bringing our 2024 multifamily acquisitions through June 30 of this year to over $19 billion compared to approximately $25 billion in the first half of 2023. This decline reflects low overall multifamily market volumes and increased competition. Our overall multifamily book had a weighted average original loan-to-value ratio of 63% and a weighted average debt service coverage ratio of 2 times. In the second quarter, multifamily property values continued to decline. According to data from the MSCI Real Assets Commercial Property Price Index, multifamily property values declined nearly 20% from the peak in July 2022 to June 2024 and are now back to the levels last seen in 2021. This is compared to the 19% decline from July 2022 to March 2024 that we mentioned last quarter. We continue to monitor the impacts of elevated interest rates on our multifamily book. Higher rates may reduce the ability of multifamily borrowers to refinance their loans prior to maturity when they typically have a balloon payment due. While our near-term maturities remain low, market maturities are expected to be elevated, which could put additional pressure on the multifamily market. Roughly 1.2% of our multifamily book is expected to mature in 2024 and approximately 3.4% is expected to mature in 2025. Our multifamily serious delinquency rate remained at 44 basis points in the second quarter. We expect our multifamily serious delinquency rate to increase in the near term due to a portfolio of approximately $600 million of adjustable-rate conventional loans that we anticipate will become seriously delinquent. Lastly, I'll touch on our current economic outlook. Our economists currently expect two rate cuts from the Federal Reserve later this year. However, they do not forecast a ramp-up in housing activity, for this to occur they think the market will need to see some combination of continued household income growth, a further slowing of home price appreciation, or a decline in mortgage rates to bring affordability within range of many homebuyers. Our current forecast is that home prices will rise 6.1% in 2024, up 1.3 percentage points from last quarter's projection. We expect single-family mortgage originations to grow from $1.5 trillion in 2023 to approximately $1.7 trillion in 2024, with purchases making up 80% of single-family mortgage originations this year. 2024 multifamily market origination volumes are now expected to be between $245 billion to $315 billion with a baseline of $275 billion. This is not much different from our estimated $265 billion in multifamily volumes for 2023, but down significantly from $480 billion in 2022. We believe that with continued high interest rates, elevated new supply completions, and higher-than-average vacancy rates, multifamily sales activity will remain subdued in the near term, which could result in additional declines in multifamily property values over the short term. Over the longer term, however, we expect sales and valuations will improve due to expected improvements in multifamily housing market fundamentals, stemming from positive demographic trends and ongoing job growth. We expect rent growth to remain below historical averages in the 1% to 1.5% range in 2024 as a result of elevated new construction completions and many renters dealing with higher levels of consumer debt. Our expectations are based on many assumptions and our actual results could differ materially from our current expectations. I invite you to visit fanniemae.com, where you'll find a financial supplement with today's filing that provides additional insights into our business. Thank you for joining us today.
Operator: Thank you, everyone. That concludes today's call. You may disconnect.
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