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Senate Banking Committee Part 2: A Reminder of the Financial Strength of Fannie & Freddie

Senate Banking Committee Part 2: A Reminder of the Financial Strength of Fannie & Freddie

Aside from the highlight of the Senate Banking Committee hearing, we wanted to bring you some other nuggets from Federal Housing Finance Agency Director Mel Watt’s likely last appearance there before the Republicans assume full control of Congress.

It’s alright if you felt like cheering when Sen. Bob Menendez (D-NJ) pointed out that Fannie Mae and Freddie Mac have become profitable to the point where they have repaid their bailout loans and yet no money is being returned to the housing trust fund. It’s great to hear this point being made by a sitting U.S. Senator in an official hearing.

Sen. Dean Heller (R-NV), who voted against Johnson-Crapo but was a co-sponsor of Corker-Warner, tried to tear into Director Watt but wound up not looking very senatorial in the process. It began with Sen. Heller asking if the agency would continue its hands-off approach to GSE reform or if it would engage with Congress. Not liking the answer (the agency’s role is to be a resource to the Committee), Sen. Heller pushed Director Watt to give his personal opinion, which Director Watt declined a few times to give. And which is really the best thing in that situation. He’s not testifying as a private individual; the head of a government agency has a responsibility to represent the positions and potential steps of the agency.

Sen. Bob Corker (R-TN), co-author of the disaster known as Corker-Warner, pressed Director Watt on the biggest risk if Congress fails to act on housing reform. This issue is really important, lest anyone think that the only issue we’re concerned with is ending the conservatorship. The housing market is fully one-third of the U.S. economy – not having a strong foundation as provided by the GSEs when they’re operating at their full potential. Director Watt’s response wasn’t anything unexpected: uncertainly could send costs up, which impacts the economy at large and that restoring certainty to the housing market has to be a priority of reform.

We’re putting a link in here to Director Watt’s prepared testimony, which includes this great summary of Fannie’s and Freddie’s financial position (bolded emphasis is from us, highlighting some particularly positive financial notes about the two):

“Following are highlights of the financial performance of the Enterprises:

“Fannie Mae

  • “Net income for the third quarter of 2014 totaled $3.9 billion.  For the first nine months of 2014, Fannie Mae reported earnings of $12.9 billion compared to net income of $77.5 billion for the first nine months of 2013, which reflected one-time or transitory items.
  • Fannie Mae has not required a Treasury draw since the fourth quarter of 2011.  The cumulative amount of draws received from the Treasury to date under Fannie Mae’s PSPA is $116.1 billion.  Through September 30, 2014, Fannie Mae has paid $130.5 billion in cash dividends to Treasury on the company’s senior preferred stock.Under the PSPA, the payment of dividends cannot be used to offset prior Treasury draws.  This provision has remained unchanged since the PSPA was established.    
  • “The credit quality of new single-family acquisitions was strong through the third quarter of 2014, with a weighted average FICO score of 743 and a weighted average loan-to-value (LTV) ratio of 77 percent.
  • “The serious delinquency rate was 1.96 percent for Fannie Mae’s total single-family book of business as of September 30, 2014.  As of this date, the serious delinquency rate for loans acquired between 2005 and 2008 was 8.27 percent compared to 0.34 percent for loans acquired since 2009.  The serious delinquency rate for loans acquired prior to 2005 was 3.27 percent as of September 30, 2014.      
  • “Fannie Mae continues to reduce its retained portfolio in accordance with the PSPA.  As of September 30, 2014, Fannie Mae’s retained portfolio balance was $438.1 billion, which represents a decline of $52.6 billion since the beginning of the year, when the balance was $490.7 billion.  As of September 30, 2014, Fannie Mae’s retained portfolio is 27 percent agency securities, 7 percent non-agency securities, 6 percent multifamily loans, and 60 percent single-family loans.

“Freddie Mac

  • “Net income for the third quarter of 2014 totaled $2.1 billion.  For the first nine months of 2014, Freddie Mac reported earnings of $7.5 billion, compared to net income of $40.1 billion for the first nine months of 2013, which reflected one-time or transitory items.  
  • Freddie Mac has not required a Treasury draw since the first quarter of 2012.The cumulative amount of draws received from the Treasury to date under Freddie Mac’s PSPA is $71.3 billion.  Through September 30, 2014 Freddie Mac has paid $88.2 billion in cash dividends to Treasury on the company’s senior preferred stock.  Under the PSPA, the payment of dividends cannot be used to offset prior Treasury draws.  This provision has remained unchanged since the PSPA was established. 
  • “The credit quality of new single-family acquisitions remained high through the third quarter of 2014, with a weighted average FICO score of 744 and a weighted average loan-to-value (LTV) ratio of 77 percent. 
  • “The serious delinquency rate was 1.96 percent for Freddie Mac’s single-family book of business as of September 30, 2014.  As of this date, the serious delinquency rate for loans originated between 2005 and 2008 was 7.66 percent compared to 0.23 percent for loans originated since 2009.  The serious delinquency rate for loans originated prior to 2005 was 3.12 percent as of September 30, 2014.
  • “Freddie Mac continues to reduce its retained portfolio in accordance with the PSPA.  As of September 30, 2014, Freddie Mac’s retained portfolio balance was $413.6 billion, which represents a decline of $47.4 billion since the beginning of the year, when the balance was $461.0 billion.  As of September 30, 2014, Freddie Mac’s retained portfolio is 43 percent agency securities, 17 percent non-agency securities, 12 percent multifamily loans, and 28 percent single-family loans.”