Federal National Mortgage Association
) or Fannie Mae reported its first-quarter 2014 net income of $5.3
billion, down significantly from $58.7 billion earned in the
prior-year quarter. This was nevertheless the company's ninth
consecutive quarterly profit. Further, the first-quarter results
included a $4.1 billion revenue flow related to the settlement with
Bank of America Corporation
Share price of Fannie Mae gained nearly 1.5% following the earnings
release on Thursday before the opening bell, thereby reflecting a
positive market response.
Results were adversely impacted by lower credit related income and
higher expenses partially offset by growth in both net revenue as
well as investment income. Nevertheless, improvement in credit
quality and strong liquidity position were the quarterly tailwinds.
Behind the Headlines
Fannie Mae's net revenue came in at $9.1 billion, growing 32.3%
year over year. The rise was driven by increase in fee and other
income, partially offset by lower net interest income.
Total credit-related income was $1.0 billion, down 14.9% from the
year-ago quarter. The fall was due to lower benefit for credit
losses partially offset by a slight increase in foreclosed property
income. However, net investment gains increased 23.7% from the
year-ago quarter to $146 million.
Administrative and other non-interest expenses totaled $1.1
billion, up 22.5% from the prior-year quarter.
Allowance for loan losses were $41.9 billion, down 4.4% from the
year-ago quarter. Further, as of Mar 31, 2014, Fannie Mae's total
loss reserves decreased to $45.3 billion from $47.3 billion as of
Dec 31, 2013.
Since Jan 2009 through Mar 2014, Fannie Mae provided more than $4.1
trillion in liquidity to the mortgage market through its purchases
and guarantees of loans. This enabled borrowers to complete the
refinancing of 12.5 million mortgages and 3.9 million home
purchases, while the bank provided financing for 2.3 million units
of multifamily housing.
Further, Fannie Mae completed more than 36,000 loan modifications
in the reported quarter. This brought the total number of loan
modifications completed by the company to approximately 1.1 million
since Jan 2009.
As of Mar 31, 2014, cash and cash equivalents were $14.1 billion
compared with $19.2 billion as of Mar 31, 2013. Further, total
mortgage loans were $3.02 trillion, down marginally from $3.03
trillion as of Mar 31, 2013.
Additionally, Fannie Mae will pay taxpayers $5.7 billion as
dividends in the second quarter of 2014. Following this payment,
the company will have paid a total of approximately $126.8 billion
as dividends to Treasury. As of Mar 31, 2014, senior preferred
stock outstanding and held by Treasury was $117.6 billion.
The mortgage lender bailed out by the government during the crisis
of 2008-2009 turned out to be a profit-yielding avenue with the
steady recovery in the housing market. However as the pace of
recovery slackens, the pressure on top line will mount. Moreover,
since a major portion of the revenue is attributable to one time
settlement fees we remain skeptical about sustainability of the
Fannie Mae currently carries a Zacks Rank #3 (Hold). Better-ranked
companies in the same sector include
Home Loan Servicing Solutions, Ltd.
Walker & Dunlop, Inc.
). While Home Loan Servicing Solutions carries a Zacks Rank #1
(Strong Buy), Walker & Dunlop holds a Zacks Rank #2 (Buy).
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