Q4 2024 Federal National Mortgage Association Earnings Call

So markets to support our mission to our single family Mission Index disclosures, which helped interested mortgage backed security investors allocate their capital in support of affordable housing.

Further we continue to offer a full suite of loss mitigation options to support homeowners facing hardship.

We believe these actions make the housing finance system and our book of business stronger.

2024, with another year of progress for Fannie Mae, we continued to deliver strong earnings while carrying out our mission and being a reliable source of liquidity for the nation's housing market.

As we head into 2025, we remained focus on our strengths.

Adapting to and needing to needs of the market and serving America's homeowners and renters safely and soundly.

Able to play a central role in housing thanks to the good work of our team over many years to transform our business model enhance how we manage risks and strengthen our finances.

Chris: Now I'll turn it to Chris to share more about our 2024 annual and fourth quarter results.

Chris: Priscilla and good morning.

Chris: As <unk> mentioned, we reported $17 million of net income in 2024.

Chris: $430 million from 2023.

Chris: Net revenues remained strong at $29 billion.

Chris: To healthy guaranty fee income of $23 billion.

Chris: Noninterest expenses were $9 $8 billion relatively flat to 2023.

Chris: Recorded a $186 million benefit for credit losses in 2024.

Chris: It's slower benefit compared to 2023 was the primary driver of our decrease in net income.

Chris: The single family benefit for credit losses was $938 million due mainly to a continuation of the longer term improvements in our home price forecast.

Chris: The multifamily provision increased by $257 million to $752 million because of an incremental decline in property values rising delinquencies and the ongoing investigation of lending transactions with suspected fraud.

Chris: We expect multifamily property values to stabilize in 2025 as I will discuss more in a moment.

Chris: Turning to the fourth quarter, we reported $4 $1 billion of net income compared to $4 million in the third quarter.

Chris: This was primarily due to an increase in fair value gains, partially offset by a shift to provisions for credit losses.

Chris: Our single family provision for credit losses in the fourth quarter was mostly driven by higher interest rates relative to the prior quarter. This was slightly offset by a multifamily benefit mainly due to improved projections for net operating income and property values.

Chris: Now, let me turn to our segments.

Chris: Starting with single film, we reported $14 $4 billion in net income in 2024, a decrease of $425 million compared to 2023.

Chris: Net interest income was relatively flat year over year, while we saw higher base guaranty fee income deferred guarantee fee income continued to be muted.

Chris: The year over year change in our single family net income was primarily driven by the lower benefit for credit losses mentioned and our overall results.

Chris: We acquired $326 billion and single family loans last year, a 3% increase compared to 2023 due to slightly higher refinancing activity.

Chris: The credit profile of our overall single family book remained strong as of year end with a weighted average mark to market loan to value ratio of 50% and a weighted average credit score at origination of 753.

Chris: Our strong underwriting and servicing standards help to keep our single family serious delinquency or S. DQ rate near historically low levels at 56 basis points at the end of December this is compared to 55 basis points at the end of 2023 and 52 basis points at the end.

Chris: The third quarter. These.

Chris: These increases were driven by increased delinquencies in areas affected by Hurricanes.

Chris: And single family credit risk transfer, we executed several transactions last year transferring a portion of the credit risk on approximately $186 billion of unpaid principal balance at the time of the transactions.

Chris: We paid approximately $1 $5 billion in premiums during the year on our outstanding single family credit risk transfers.

Chris: Through primary mortgage insurance programs, such as cash and search at the end of the year, 46% of our single family book had some form of credit enhancement.

Chris: Turning to multifamily we reported $2 $5 billion in net income in 2024 consistent with 2023.

Chris: Compared to 2023, we reported a $74 million increase in net interest income due mainly to higher guaranty fee income from book or.

Chris: Partially offset by lower average charged guaranty fees and the impact of lower yield maintenance income from fewer prepayments.

Chris: However, our provision for credit losses increased $257 million year over year as mentioned in our overall results.

Chris: According to the most recent data from the N S. C. I R. C. A commercial property price index property values declined 19% from the peak in the second quarter of 2022 to the fourth quarter of 2024.

Chris: However, the pace of decline has been slowing throughout 2024 and continued to slow in the fourth quarter.

Chris: While we expect property values to stabilize in 2025, our multifamily allowance reflects some uncertainty for property value projections.

Chris: Our multifamily S. DQ rate increased to 57 basis points at the end of 2024 compared to 46 basis points at the end of 2023.

Chris: The year over year increase was primarily due to a portfolio of approximately $600 million of arm loans that became seriously delinquent during the third quarter of the year.

Chris: Multifamily lending transactions involving fraud or suspected fraud further heightened the risk of default and added to our multifamily credit loss provision.

Chris: The higher provision year over year was partially offset by a $211 million increase in expected credit enhancement recoveries, mainly due to the loss sharing arrangements, we have with our dust lenders.

Chris: We acquired approximately $55 billion in multifamily loans last year up 4% from 2023, reflecting increased market activity in the fourth quarter.

Chris: Our overall multifamily book as of year end.

Chris: Had a weighted average original loan to value ratio of 63% and a weighted average debt service coverage ratio of two times.

Chris: In multifamily credit risk transfer, we executed three transactions transferring a portion of the credit risk on approximately $26 billion of unpaid principal balance at the time of the transactions.

Chris: Because of our unique desk risk sharing model, whereby we share a portion of the credit risk on the multifamily loans, we acquire coupled with our M Cas and M certain programs.

Chris: Essentially all of our multifamily book has some form of credit enhancement.

Speaker Change: Turning to capital as <unk> mentioned, we have nearly $95 billion of network and over the past few years, we have built $37 billion of regulatory capital meaningfully reducing our regulatory capital deficit.

Speaker Change: We remain focused on building capital and continuing our progress towards meeting our capital requirements.

Speaker Change: We have a $146 billion capital shortfall to our minimum total risk based capital requirement today, primarily because of the $128 billion stated value of the senior preferred stock does not qualify as regulatory capital.

Speaker Change: More information about our capital rule and progress towards our regulatory capital requirements are in our financial supplement and 10-K filed today.

Speaker Change: Lastly, I'll share our current economic outlook.

Speaker Change: Given inflation measures have remained stickier than markets expected earlier last year.

Speaker Change: Economists do not expect a meaningful decline in the 10 year treasury rate in 2025.

Speaker Change: As a result.

Speaker Change: Mortgage rates are expected to remain elevated at above 6% and we predict home sales will remain suppressed.

Speaker Change: Existing home sales are expected to total $4, one 5 million units in 2025, an improvement over the approximately 4 million units in existing home sales in 2024, but still down more than 20% compared to 2019.

Speaker Change: We anticipate new home sales will remain strong in 2025 expecting an annualized sales pace of 738000 units as builders seek to respond to housing demand.

Speaker Change: While the continued lack of inventory for homes available for sale has helped to keep home price growth strong we expect home price growth to decelerate in 2025, we currently project year over year home price growth will be three 5% in 2025 as measured by the Fannie Mae home prices.

Speaker Change: It acts compared to five 8% in 2024.

Speaker Change: We anticipate home price growth in 2025 will be slower than the rate of household income growth, helping to gradually improve affordability for homebuyers.

Speaker Change: We forecast single family mortgage originations of about $1 nine trillion in 2025 up from an estimated one seven trillion dollars in 2024 with purchases forecasted to make up 74% of single family mortgage originations this year.

Longer term demographic trends remain supportive of multifamily construction over the next decade.

Speaker Change: The prime renter, aged population is expected to continue to grow.

Speaker Change: We expect rent growth to be in the two to two 5% range in 2025 and vacancy rates to be between six and $6 two 5%.

Speaker Change: And we forecast multifamily market originations between $330 billion to $375 billion in 2025.

Speaker Change: Our expectations are based on many assumptions and our actual results could differ materially from our current expectations I.

Speaker Change: I invite you to visit Fannie Mae Dot com, where you'll find our financial supplement and our 2024 10-K filed today that provides additional insights into our business.

Speaker Change: Thank you for joining us today.

Speaker Change: Thank you everyone that concludes today's call.

Speaker Change: Disconnect.

Speaker Change: Yeah.

Speaker Change: Yeah.