Spikes in amortization income, guarantee-fee income and credit-related expenses are all closely tied to the government’s intervention in the coronavirus crisis. (Includes data chart.)
Fannie and Freddie reported a combined profit of $6.69 billion in the third quarter, a 54.8% sequential increase. However, year-to-date profits were down more than 19% due to COVID and CECL implementation. (Includes data chart.)
Models using the most likely assumptions about retained earnings, capital requirements and expected returns suggest the GSEs would have unsuccessful public offerings.
The improved financial performance of the GSEs largely reflects the impact of CECL. The provisions for losses that would have been made in 2Q20 under the old accounting standard were already accounted for by CECL, which was adopted in December. (Includes data chart.)
Most of the concerns about the new regulation hinge on how much profit the GSEs can make under the bumped-up capital levels. Most industry observers appear to be on the side of “not enough.”
The GSEs’ showing in the first quarter only reflects one full month of the impact of the coronavirus crisis. As potentially millions more homeowners stop paying their mortgages, the enterprises face the prospect of an even more challenging second quarter. (Includes data chart.)
Freddie Mac believes the market for credit-risk transfers may never return to pre-COVID levels because of the potential impact of the pandemic on mortgage performance.
The hiatus in the net worth sweep added $12.53 billion to the GSEs’ combined net worth over the last six months of 2019, including fourth-quarter profit of $4.27 billion at Fannie and $2.45 billion at Freddie. (Includes data chart.)
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