Strong Q3 Earnings for Fannie Mae - Analyst Blog

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Federal National Mortgage Association ( FNMA ) or Fannie Mae reported third-quarter 2013 net income of $8.7 billion, significantly up from $1.8 billion earned in the year-ago quarter. This was the company's seventh consecutive quarterly profit.

Results benefited from growth in revenues and credit-related income, partially offset by higher expenses. Further, improving credit quality and stable liquidity position were the other highlights.

Behind the Headlines

Fannie Mae' net revenue came in at $6.3 billion, growing 11.0% from the prior-year quarter. The rise was driven by increase in net interest income (up 5.0%) as well as fee and other income (up 96.0%).

Total credit-related income was $3.8 billion compared with credit-related expense of $2.0 billion in the year-ago quarter. The improvement was driven by rise in home prices in the quarter; the recognition of compensatory fees received in relation with Bank of America Corporation ( BAC ) compensatory fee agreement; and a fall in the number of delinquent loans in the company's single-family guaranty book of business.

Administrative and other non-interest expenses totaled $954 million, up 2.9% from $927 million in the prior-year quarter.

Credit losses, which the company defines as net charge-offs plus foreclosed property expense, net of the effect of certain fair-value losses, were $1.1 billion, down 68.6% from $3.5 billion in the year-ago quarter.

As of Sep 30, 2013, Fannie Mae's total loss reserves decreased 28.4% to $48.4 billion.

Since Jan 2009 through Sep 30, 2013, Fannie Mae provided nearly $3.9 trillion in liquidity to the mortgage market through its purchases and guarantees of loans. This enabled borrowers to complete 12.0 million mortgage refinancings and 3.4 million home purchases, while the bank provided financing for 2.0 million units of multifamily housing.

Further, Fannie Mae completed more than 37,000 loan modifications in the said quarter. This brought the total number of loan modifications completed by the company to nearly 1 million since Jan 2009.

As of Sep 30, 2013, cash and cash equivalents were $30.8 billion compared with $24.7 billion as of Jun 30, 2013. Further, total mortgage loans were $3.01 trillion, up from $2.98 trillion as of Jun 30, 2013.

Additionally, Fannie Mae will pay taxpayers $8.6 billion as dividends in December. Following this payment, the company will have paid a total of approximately $114 billion as dividends to Treasury. As of Sep 30, 2013, senior preferred stock outstanding and held by Treasury was $117.1 billion.

Performance of Other Firms in the Same Industry

Federal Home Loan Mortgage Corporation ( FMCC ) reported third-quarter net income of $30.5 billion, well ahead of the prior-quarter figure of $5 billion. A benefit for federal income taxes of $23.9 billion related to valuation allowance against net deferred tax assets in the reported quarter drove the higher income.

Ocwen Financial Corp 's ( OCN ) third-quarter net income came in at $67.0 million compared with $51.4 million in the prior-year quarter. Net income in the reported quarter included charges for amortization of mortgage servicing rights associated with acquisition of ResCap and OneWest.

Our Viewpoint

Fannie Mae continues to support the housing recovery and will contribute in building a sustainable housing finance system. While the company expects its annual earnings to remain strong over the next few years, any decline in interest rates or home prices could dent its performance going forward.

Fannie Mae currently carries a Zacks Rank #2 (Buy).



BANK OF AMER CP (BAC): Free Stock Analysis Report

FREDDIE MAC (FMCC): Get Free Report

FANNIE MAE (FNMA): Get Free Report

OCWEN FINL CORP (OCN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: BAC , FMCC , FNMA , OCN

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