Q3 2024 Federal National Mortgage Association Earnings Call
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Operator: Good day and welcome to the Fannie Mae 3rd Quarter 2024 Financial Results Conference Call.
Speaker Change: Good day and welcome to the Fannie Mae 3rd 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: At this time, I will now turn it over to your host, Pete Bakel, Fannie Mae's Director of External Communication.
Pete Bakel: Hello and thank you all for joining today's conference call to discuss Fannie Mae's third 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.
Pete Bakel: Hello, and thank you all for joining today's conference call to discuss Fannie Mae's third quarter, 2024 financial results.
Speaker Change: Please note this call includes forward-looking statements, including statements of afthanimays, 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.
Pete Bakel: The risk factors and forward-looking statements sections in the company's third quarter 2024 Form 10-Q filed today and 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.
Speaker Change: Petrovans may turn out to be very different from these statements.
Speaker Change: The risk factors and forward-looking statements, sections in the company's third quarter, 2024, Form 10Q, filed today, and in the company's 2023 Form 10K filed on February 15, 2024, to describe factors that may lead to different results.
Pete Bakel: We ask that you do not record this call for public broadcast and that you do not publish any full transcript.
Speaker Change: Recording this call may be posted on the company's website. We as that you do not record this call from public broadcast and that you do not publish any full transcript. I'd like to turn the call over to Fannie Mae, President and Chief Executive Officer, Priscilla Amodovar and Fannie Mae Chief Financial Officer, Chris Issey Halley.
Pete Bakel: 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 Chris E. Howley.
Priscilla Almodovar: Welcome and thank you for joining us. Before we get into our results, I want to mention those affected by recent natural disasters. These events can be tough, and Fannie Mae is here to help.
Priscilla Amodovar: Welcome and thank you for joining us. Before we get into our results I want to mention those affected by recent natural disasters. These events can be tough and fanomays here to help. I'll discuss this more shortly.
Priscilla Almodovar: I'll discuss this more shortly.
Priscilla Almodovar: I'll start by talking about the economic conditions in the third quarter before moving on to our financial results and mission performance.
Priscilla Amodovar: I'll start by talking about the economic conditions in the third quarter before moving on to our financial results and mission performance. After that, our Chief Financial Officer, Chris Haley will discuss our quarterly results in more detail.
Priscilla Almodovar: After that, our Chief Financial Officer, Chrissa Haley, will discuss our quarterly results in more detail. First, the economy. The 30-year fixed rate mortgage rate averaged 6.5% during the quarter, more than 50 basis points lower than the same time last year. Even with lower rates and better supply in some areas, existing home sales stayed low. Our research team thinks 2024 will have the lowest existing home sales since 1995. Housing affordability still makes it hard for people to buy homes. We estimate home prices went up about 1% during the quarter and 5.9% since the start of the year.
Priscilla Amodovar: First, the economy. The 30-year fixed rate mortgage rate average 6.5% during the quarter, more than 50 basis points lower than the same time last year.
Priscilla Amodovar: Even with lower rates and better supply in some areas, existing home sales state lows.
Priscilla Amodovar: Our research team thinks 2024 will have the lowest existing home sale since 1995.
Priscilla Amodovar: Housing affordability still makes it hard for people to buy homes.
Priscilla Amodovar: With the help of Chryssa, we have to make home prices went up about 1% during the quarter and 5.9% since the start of the year.
Priscilla Almodovar: Overall, home prices are up over 50% since 2019. With this in mind, it is not surprising that only 19% of people surveyed in our recent Home Purchase Sentiment Index said it was a good time to buy a home. For renters, too, affordability is still a problem in many areas. Many are spending more than 30% of their income on housing.
Priscilla Amodovar: Overall, home prices are up over 50% since 2019. With this in mind, it is not surprising that only 19% of people surveyed in our recent home purchase sentiment index, said it was a good time to buy a home.
Priscilla Amodovar: For Wenders 2 affordability is still a problem in many areas, many are spending more than 30% of their income on housing.
Priscilla Almodovar: Now let's look at our third quarter financial results. We made $4 billion in net income, which is down from the $4.5 billion we made in the second quarter. Our net income increased our net worth to 90.5 billion dollars as of the end of September, making us even more financially stable. Plus, since the start of this year, we've reduced our minimum regulatory capital shortfall by $17 billion. We provided $106 billion of liquidity to the single-family and multifamily markets in the third quarter. Our efforts helped 383,000 households buy, refinance, or rent a home. This included about 103,000 units of multifamily rental housing, mostly affordable for household earning at or below 120% of area median income.
Speaker Change: Now let's look at our third quarter financial results.
Speaker Change: We made $4 billion in net income, which is down from the $4.5 billion we made in the second quarter.
Speaker Change: Our net income increased our net worth to $90.5 billion as of the end of September, making us even more financial
Speaker Change: Plus, since the start of this year, we've reduced our minimum regulatory capital shortfall by $17 billion.
Speaker Change: We provided $106 billion of liquidity to the single family and multi-family markets in the third quarter. Our efforts helped 383,000 households by refinance or rent a home.
Speaker Change: This included about 103,000 units of multi-family rental housing, mostly affordable for household earning at or below 120% of area median income. We also helped 117,000 first-time home buyers to buy a home.
Priscilla Almodovar: We also helped 117,000 first time homebuyers to buy a home. Our efforts are focused on shaping a housing market that sees and serves more people. This includes our ongoing work to remove obstacles that many renters and homebuyers face, like limited credit history and high upfront costs. For example, in both multifamily and single family, we're using rent payment data to support better outcomes for consumers. Additionally, we are exploring new ways to support our mission in the capital market. like with our single-family and multi-family social bonds that help direct capital towards affordable housing and underserved borrowers and markets.
Speaker Change: Our effort to focus on shaping a housing market that sees and serves more people.
Speaker Change: This includes our ongoing work to remove obstacles that many renters and homebinder space, like limited credit history and high upfront costs.
Speaker Change: For example, in both multi-family and single-family, we're using red payment data to support better outcomes for consumers.
Speaker Change: Additionally, we are exploring new ways to support our mission in the capital markets, like with our single family and multi-family social bonds that help direct capital towards affordable housing and underserved borrowers and markets.
Priscilla Almodovar: Our mission is not just about helping people get into homes, but also helping them stay in their homes, especially during tough times like disasters. Fannie Mae provides many resources to renters and homeowners after disasters. This includes free personalized help from HUD-approved housing counselors. It also includes mortgage assistance for eligible Fannie Mae homeowners where they can temporarily reduce or suspend their mortgage payments under a forbearance plan. After this period, we offer workout options to catch up on missed payments, like our disaster payment deferral and flex modification. For eligible multifamily owners that are borrowers, we offer help such as forbearance and repayment plans.
Speaker Change: Our mission is not just about helping people get into homes, but also helping them stay in their homes, especially during tough times like disasters.
Speaker Change: Bany may provide many resources to renters and homeowners after disasters.
Speaker Change: This includes free personalized help from HUD approved health and counselors. It also includes mortgage assistance for eligible phanny may homeowners, where they can temporarily reduce or suspend the mortgage payments under a forbearance plan.
Speaker Change: After this period, we offer workout options to catch up on this payments, like our disaster payment deferral and flex modification.
Speaker Change: For eligible multi-family owners that are borrowers, we offer help such as forbearance and repayment plans. This allows them to temporarily suspend payments and then to catch up through structured payment plans.
Priscilla Almodovar: This allows them to temporarily suspend payments and then to catch up through structured payments. These options not only help communities grow stronger, but they make Fannie Mae's business more stable. They are important parts of how we manage.
Speaker Change: These options not only help communities go stronger, but they make families business more stable. They are important part of how we manage risk.
Priscilla Almodovar: These efforts show that we are committed to working with our partners to support homeowners and renters in the U.S. We're also focused on strengthening our finances and managing risks, which helps us provide liquidity and stability to the housing market and achieve our mission.
Speaker Change: These efforts show that we are committed to working with our partners to support homeowners and renters in the US. We are also focused on strengthening our finances and managing risks, which helps us provide liquidity and stability to the housing market and achieve our mission.
Priscilla Almodovar: Thank you to my Fannie Mae colleagues for their dedication to finding innovative solutions to the nation's toughest housing challenges.
Speaker Change: Thank you to my fan and my colleagues for their dedication to finding innovative solutions to the nation's toughest housing challenges.
Priscilla Almodovar: Now Chrissa will share more about our third quarter.
Speaker Change: Now, Chryssa will share more about our third quarter results.
Chryssa Halley: Thank you, Priscilla, and good morning. As Priscilla mentioned, we reported $4 billion in net income in the third quarter, down $440 million from the second quarter. Our third quarter revenues remained strong at $7.3 billion, driven by steady guarantee fee income, but our benefit for credit losses was down $273 million this quarter. In multifamily, we recorded a $424 million provision for credit losses, up $176 million from the prior quarter. The third quarter provision was largely driven by ARM loans that were written down during the period and modest decreases in forecasted property value. We have reflected some uncertainty in the allowance for property value projections and assume it will take longer to see a recovery.
Chryssa: Thank you Priscilla in good morning. As Priscilla mentioned, we reported $4 billion in net income in the third quarter, down $440 million from the second quarter.
Chryssa: Our third quarter revenues remain strong at $7.3 billion driven by steady guarantee fee income. But our benefit for credit losses was down $273 million this quarter.
Chryssa: In multi-family, we recorded a $424 million provision for credit losses.
Chryssa: of $176 million from the prior quarter. The third quarter provision was largely driven by arm loans that were written down during the period and modesty creases in forecasted property values.
Chryssa: We have reflected some uncertainty in the allowance for property value projections and assume it will take longer to see a recovery. Our multifamily allowance also reflects uncertainty relating to the ongoing investigation of lending transactions with suspected fraud.
Chryssa Halley: Our multifamily allowance also reflects uncertainty relating to the ongoing investigation of lending transactions with suspected fraud. In single family, we recorded a $451 million benefit for credit losses this quarter, which is down $97 million from last quarter. We continue to see increases in forecasted home prices as the primary driver of our change in reserves, which are down to level seen in 2021.
Chryssa: In single family, we recorded a $451 million benefit for credit losses this quarter, which is down $97 million from last quarter.
Speaker Change: We continue to see increases in forecasted home prices as the primary driver of our changing reserves which are down to level seen in 2021. Also, Priscilla mentioned the hurricanes. The impact of hurricane healing is considered in our allowance.
Chryssa Halley: Also, Priscilla mentioned the hurricanes. The impact of Hurricane Helene is considered in our allowance. Declining interest rates primarily drove smaller fair value gains this quarter at $52 million versus $447 million of fair value gains last quarter. In our single-family business, we acquired $93.1 billion in loans this quarter. This was up 8% compared to the prior quarter, mainly attributable to an increase in purchase volume for seasonal activity and a decline in average mortgage rates of 49 basis points. Purchase loans made up 86% of our third quarter acquisition. The credit profile of our single-family acquisitions remains strong, with a weighted average loan-to-value ratio of 77% and a weighted average credit score of 759.
Speaker Change: The Clining Interest rates primarily drove smaller fair value gains this quarter at $52 million, versus $447 million that fair value gains last quarter.
Speaker Change: In our single family business, we acquired 93.1 billion dollars in loan supportor.
Speaker Change: This was up 8% compared to the prior quarter, mainly attributable to an increase in purchase volume for the seasonal activity and a decline in average mortgage rates of 49 basis points.
Speaker Change: Purchas lens may depb 86% of our third quarter acquisitions.
Speaker Change: The credit profile of our single family acquisitions remains strong.
Speaker Change: With the weighted average loan to value ratio of 77% and a weighted average credit score of 759
Chryssa Halley: Our single-family serious delinquency, or SDQ, rate remained near historically low levels, increasing to 52 basis points at the end of September from 48 basis points at the end of June. We anticipate that the impact of Hurricanes Helene and Milton will result in an increase in our single-family SDQ rate in the short term. In addition, given our expectation of slower economic growth, we expect the credit performance of the loans in our single-family book may decline compared to recent performance, which could lead to an increase in our single-family SDQ rate.
Speaker Change: Our single family series Delinquency or SDQ rate remain near historically low levels, increasing to 52 basis points at the end of September from 48 basis points at the end of June.
Speaker Change: We anticipate that the impact of Hurricane Salene in Melton will result in an increase in our single family SDQ rate in the short term.
Speaker Change: In addition, given our expectation of slower economic growth, we expect the credit performance of the loans in our single-family book made a climb compared to performance, which could lead to an increase in our single-family SDQ rate.
Chryssa Halley: turning to single-family credit risk transfer. We executed three transactions in the third quarter between our Connecticut Avenue Securities, or CAS, and our Credit Insurance Risk Transfer, or CERT, programs, transferring a portion of the credit risk on approximately $44.5 billion of unpaid principal balance at the time of the transaction. We paid $361 million in premiums during the quarter on our outstanding single-family credit risk transfer transaction. In our multifamily business, we acquired $13.2 billion in loans during the quarter, bringing our 2024 multifamily acquisitions through September 30th to $32.5 billion, compared to $41.7 billion in the first nine months of 2023.
Speaker Change: Turning to single family credit restraints for her.
Speaker Change: We executed three transactions in the third quarter between our Connecticut Avenue Securities or Cast and our Credit Insurance Risk Transfer or SIRP Programs.
Speaker Change: Transferring a portion of the credit risk on approximately $44.5 billion of unpaid principal balance at the time of the transactions.
Speaker Change: We paid $361 million in premiums during the quarter on our outstanding single-family credit risk transfer transactions.
Speaker Change: In our multi-family business, we acquired $13.2 billion in loans during the quarter, bringing our 2024 multi-family acquisitions through September 30th to $32.5 billion compared to $41.7 billion in the first nine months of 2023.
Chryssa Halley: 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 third quarter, multifamily property values continued to decline. According to the most recent data from the MSCI Real Assets Commercial Property Price Index, multifamily property values declined 19.5% from the peak in the second quarter of 2022 to the third quarter of 2024 and are now back to the levels last seen in 2021. Our multifamily SDQ rate increased to 56 basis points at the end of September this year, compared to 44 basis points at the end of June.
Speaker Change: Our overall multifamily book had a weighted average original loan to value ratio of 63% and a weighted average debt service coverage ratio of two times.
Speaker Change: In the third quarter, multi-family property values continue to decline.
Speaker Change: According to the most recent data from the MSCI Real Assets Commercial Property Price Index,
Speaker Change: Multi-family property values declined 19.5% from the peak in the second quarter of 2022 to the third quarter of 2024 and are now back to the levels last year in 2021.
Speaker Change: Our multi-family SDQ rate increased to 56 basis points at the end of September this year compared to 44 basis points at the end of June.
Chryssa Halley: This increase was due to a portfolio of armed loans with approximately $600 million in UPB that became seriously delinquent during the third quarter. In multifamily credit risk transfer, we executed two transactions through our multifamily CAS and multifamily CERT programs, transferring a portion of the credit risk on approximately $14.1 billion of unpaid principal balance at the time of the transaction.
Speaker Change: This increase was due to a portfolio of arm loans with approximately $600 million in UPB.
Speaker Change: that became seriously delinquent during the third quarter. In multi-family credit restraints for a weight executed two transactions.
Speaker Change: Through our multi-family cast and multi-family start programs.
Speaker Change: Transferring a portion of the credit risk on approximately $14.1 billion of unpaid principle balance at the time of the transactions.
Chryssa Halley: Lastly, I'll touch on our current economic outlook. As Priscilla shared, existing home sales remain subdued. Our economics and strategic research team expects $4.8 million in total home sales in 2024, picking up to 5.2 million units in 2025. We project home price growth of 5.8% for the full year of 2024 and slowing growth to 3.6% in 2025. 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 78% of single family mortgage originations this year. We continue to expect 2024 multifamily market origination volumes to be roughly $275 billion, with a range between $245 billion and $315 billion.
Speaker Change: Lastly, I'll touch on our current economic outlook.
Speaker Change: As Priscilla shared, existing home sales remains subdued.
Speaker Change: Our Economics and Strategic Research Team expects 4.8 million in total home sales in 2024, picking up to 5.2 million units in 2025.
Speaker Change: We project home price growth of 5.8% for the full year of 2024 and slowing growth to 3.6% in 2025.
Speaker Change: The Expect Single Family Mortgage Originations to grow from $1.5 trillion in 2023 to approximately $1.7 trillion in 2024, but purchases making up 78% at single-family mortgage origination this year.
Speaker Change: We continue to expect 2024 multi-family market origination volumes to be roughly $275 billion With a range between $245 billion and $315 billion
Chryssa Halley: While not far from our estimated $265 billion in volumes for 2023, this is down significantly from $480 billion in 2022. We expect rent growth to remain below historical averages in the 1 to 1.5% range in 2024 because of elevated new construction completions and many renters dealing with high levels of consumer debt. Our expectations are based on many assumptions and our actual results could differ materially from our current expectations.
Speaker Change: Well, not far from our estimated $265 billion in volumes for 2023, this is down significantly from $480 billion in 2022.
Speaker Change: We expect Rancbroath to remain below historical averages in the 1 to 1.5% range in 2024 because of elevated new construction completions and many renters dealing with high levels of consumer debt.
Speaker Change: Our expectations are based on many assumptions and our actual results could differ materially from our current expectations. I invite you to visit fanniemay.com where you'll find a financial supplement with today's filing that provides additional insights into our business.
Chryssa Halley: 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. Thank you, everyone.
Speaker Change: Thank you for joining us today.
Operator: That concludes today's call. You may disconnect. Thanks for watching!
Speaker Change: Thank you everyone, that concludes today's call you may disconnect.
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