Q1 2025 Federal National Mortgage Association Earnings Call

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Operator: Good day and welcome to the Fannie Mae first quarter 2025 financial results conference call.

Good day and welcome to the Fannie Mae first quarter 'twenty 25 financial results Conference call. At this time I will now turn it over to your host Pete, but Kal 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 Communications. Hello and thank you all for joining today's conference call to discuss Fannie Mae's first quarter 2025 financial results. Please note, this call includes forward looking statements, including statements about Fannie Mae's and the Director of the U.S. Federal Housing, FHFA's, expectations related to economic and housing market conditions, the future performance of the company's book of business, the company's future financial performance, and the company's business plans and their impact. Future events may turn out to be very different from these statements.

Pete: Hello, and thank you all for joining today's conference call to discuss Fannie Mae's first quarter 2025 financial results.

Pete: Please note. This call includes forward looking statements, including statements about Fannie Mae's and the director of the U S. Federal housing fhfa's expectations related to economic and housing market conditions. The future performance of the Companys book of business, the company's future financial performance and the company's business plans and their impact.

Pete: Act.

Pete: Future events may turn out to be very different from these statements.

Operator: forward-looking statements section in the company's first quarter 2025 Form 10-Q filed today and in the company's 2024 Form 10-K filed on February 14th 2025 describe factors that may lead to different results.

Pete: The forward looking statements section in the company's first quarter 2025 Form 10-Q filed today and in the company's 2024 Form 10-K filed on February 14th 2025 describe factors that may lead to different results.

Operator: A recording of this call may be posted on the company's website.

Speaker Change: According to this call may be posted on the company's website. We ask that you do not record this call for public broadcast and that you do not publish any full transcript I'd now like to turn the call over to director of the U S. Federal housing FHFA and chairman of the Fannie Mae Board of Directors, William J, Pulte, Fannie Mae President and Chief.

Operator: We ask that you do not record this call for public broadcast and that you do not publish any full transcript.

William J. Pulte: I'd now like to turn the call over to Director of the U.S. Federal Housing, FHFA, and Chairman of the Fannie Mae Board of Directors, William J. Pulte, Fannie Mae President and Chief Executive Officer, Priscilla Almodovar, and Fannie Mae Chief Financial Officer. C. Halley. While assets are significant, there remains great opportunity to trim fat, turn the business around, generate more earnings, and do so all while ensuring safety and sound. A profitable Fannie Mae, one with a strong balance sheet and strong capital, focused on delighting customers, means a safe and sound U.S. mortgage market.

Speaker Change: Officer, Priscilla Almodovar, and Fannie Mae Chief Financial Officer Christian C. Halle.

Priscilla Almodovar: Our current focus at Fannie may is on operational efficiency and ensuring that Fannie Mae has a world class operator, while assets are significant there remains great opportunity to trim fat turned the business around generate more earnings and do so all while ensuring safety and soundness a pre.

Priscilla Almodovar: <unk> Fannie Mae one with a strong balance sheet and strong capital focused on delighting customers means a safe and sound U S mortgage market the.

Operator: The operational improvements we are driving at Fannie Mae will turn around the company and will make Fannie Mae a great American icon once again.

Priscilla Almodovar: The operational improvements we are driving at Fannie Mae will turnaround the company and will make Fannie Mae a great American icon once again.

Priscilla Almodovar: Thank you, Director Pulte, and welcome all. Thank you for joining us today. We delivered solid results this quarter as we continued our focus on providing liquidity and stability to the nation's housing market.

Speaker Change: Thank you director Paul date, and welcome all thank you for joining us today.

Speaker Change: We delivered solid results this quarter as we continued our focus on providing liquidity and stability to the nation's housing markets I will start with an overview of the housing environment, then share our financial results and mission performance highlights.

Priscilla Almodovar: I will start with an overview of the housing environment, then share our financial results and mission performance highlights.

Priscilla Almodovar: After that, our Chief Financial Officer, Chrissa Halley, will discuss her financial results in more detail.

Speaker Change: After that our Chief Financial Officer, Chris will discuss our financial results.

Priscilla Almodovar: First, the housing. The 30-year fixed rate mortgage rate averaged 6.8% during the quarter, slightly up from the 6.6% in the last quarter. Total annualized home sales rose slightly to an estimated $4.8 million in the first quarter, though remained well below the level seen pre-COVID. Affordability challenges and lock-in effect remained persistent as well. High home prices continue to be the primary sticking point for buyers. Nationally, home prices increased 5.2% for the 12 months ending March 31. Single-family mortgage market originations were an estimated $378 billion, a 16% increase from the first quarter of 2024. In multifamily, the national vacancy rate was 6% as of March 31, unchanged year-on-year.

Speaker Change: First the housing environment.

Speaker Change: 30 year fixed rate mortgage rate averaged six 8% during the quarter slightly up from the six 6% in the last quarter.

Speaker Change: Total annualized home sales rose slightly to an estimated $4 8 million units in the first quarter.

Speaker Change: It remains well below the levels seen retail.

Speaker Change: Affordability challenges and lock in effect remained persistent headwinds hi.

Speaker Change: High home prices continue to be the primary sticking point for buyers.

Speaker Change: Nationally home prices increased five 2% for the 12 months ended March 31.

Speaker Change: Single family mortgage market originations, where an estimated $378 million.

Speaker Change: 16% increase from the first quarter of 'twenty 'twenty four.

Speaker Change: In multifamily the national vacancy rate was 6% as of March 31 unchanged year on year.

Priscilla Almodovar: Rents went up by 0.3% in the first quarter of 2025 and up 1% from a year ago. While multifamily property values remain down from the peak, they have shown some initial signs of stability.

Speaker Change: <unk> went up by 23% in the first quarter of 2025 and up 1% from a year ago.

Speaker Change: Well multifamily property values remain down from the peak they have shown some initial signs of stabilizing.

Priscilla Almodovar: Now let's dive into our first quarter financial results. We earned $7.1 billion in net revenue and $3.7 billion in net income in the first quarter. Our results show a steady revenue stream, mainly driven by guaranteed fee income on our $4.1 trillion book office. As of the end of the first quarter, we grew our net worth to $98 billion, a nearly 20% increase compared to the first quarter a year ago. and since the end of 2022, we have built 41 billion dollars of regulatory capital. In the first quarter, we recognized $931 million in expenses we paid to the U.S.

Now, let's dive into our first quarter financial results.

Speaker Change: We earned $7 $1 billion in net revenue and $3 $7 billion in net income in the first quarter.

Speaker Change: Our results show a steady revenue stream, mainly driven by guarantee fee income on a 4.1 trillion dollars.

Speaker Change: Yes.

Speaker Change: As of the end of the first quarter, we grew our net worth $98 billion or nearly 20% increase compared to the first quarter a year ago.

Speaker Change: And since the end of 2022, we have built $41 billion of regulatory capital.

Speaker Change: In the first quarter, we recognized $931 million and expenses we pay.

Priscilla Almodovar: Treasury, HUD, and FHFA for TCCA fees, affordable housing funds, and FHFA assessments.

Speaker Change: Hey to the U S Treasury.

Speaker Change: HUD FHFA for T C CIC affordable housing fund and FHFA assessments.

Priscilla Almodovar: Now let's talk about how we performed on our housing mission. In the first quarter of 2025, we provided $76 billion of liquidity to support single-family and multi-family mortgage lending. This helped 287,000 households buy, refinance, or rent a home. This included 93,000 units of multi-family rental housing, most of which are affordable for households earning at or below 120% of area median income. It also included about 74,000 first-time homebuyers. In fact, half of the purchase loans we bought this quarter were for first-time homebuyers.

Speaker Change: Now, let's talk about how we performed on our housing mission.

Speaker Change: In the first quarter of 2025, we provided $76 billion of liquidity to support single family and multifamily mortgage lending.

Speaker Change: This helped 287000 households by refinance or rent a home.

Speaker Change: This included 93000 units of multifamily rental housing most of which are affordable for households, earning at or below 120%.

Speaker Change: <unk>.

Speaker Change: It also included about 74001st time homebuyers and back half of the purchase loans. We bought this quarter were for first time home buyers.

Priscilla Almodovar: But it's not just about helping people get into homes, it's also about making sure they can stay in them. That's why we also focus on loss mitigation. When borrowers and renters face hardships, we have clear, consistent, and proven tools that help maintain stable housing. This includes workout options like payment deferral, loan modifications, and repayment plans. Through these options, we help nearly 27,000 borrowers remain in their homes during the quarter. These activities strengthen the communities we serve and make our book more resilient to loss. Our work and the underwriting and servicing standards we set help attract capital to our mortgage-backed securities.

But it's not just about helping people get into homes. It's also about making sure they can stay in.

Speaker Change: That's why we also focus on loss mitigation.

Speaker Change: When borrowers inventors face hardships.

Speaker Change: Clear consistent and proven tool that help maintain stable housing.

Speaker Change: This includes workout options like payment deferral loan modifications and repayment claim.

Speaker Change: These options, we helped nearly 27000 borrowers remain in their homes during the quarter.

Speaker Change: These activities strengthen the communities, we serve and make our book more resilient to losses.

Speaker Change: Our work and the underwriting and servicing standards, we set help attract capital to our mortgage backed securities. This provides diverse global essential liquidity to the U S housing market.

Priscilla Almodovar: This provides diverse, global, essential liquidity to the U.S. housing market.

Priscilla Almodovar: So to wrap up, we had a solid quarter. Our team is laser focused on supporting housing affordability and stability and being a reliable source of reporting. To do this, we're focused on managing our risks, strengthening our profitability, and enhancing how we run the business.

Speaker Change: So to wrap up we had a solid quarter. Our team is laser focused on supporting housing affordability and stability and being a reliable source.

Speaker Change: To do this were focused on managing our risks strengthening our profitability and enhancing how we run the business.

Priscilla Almodovar: We look forward to our continued partnership with the new administration as we work together to tackle housing affordability.

Speaker Change: Look forward to our continued partnership with the New administration as we work together to tackle housing affordability.

Chryssa Halley: With that, I'll turn it over to Chrissa to discuss our first quarter financial results in more detail. Thank you, Priscilla, and good morning. As Priscilla mentioned, we reported $3.7 billion of net income in the first quarter, our 29th consecutive quarter of positive earnings. Revenues of $7.1 billion were flat year over year. We recorded a $24 million provision for credit losses during the quarter compared to the $180 million benefit we recorded in the first quarter of 2024. Non-interest expense was $2.6 billion compared to $2.3 billion in the first quarter of 2024. Our efficiency ratio, as presented in our financial supplement, was 36.1% for the quarter.

Chris: With that I'll turn it over to Chris.

Chris: Discuss our first quarter financial results.

Chris: Thank you Priscilla and good morning.

Speaker Change: As <unk> mentioned, we reported $3 $7 billion of net income in the first quarter or 29th consecutive quarter of positive earnings.

Speaker Change: Revenues of $7 $1 billion were flat year over year.

Speaker Change: We recorded a $24 million provision for credit losses during the quarter compared to the $180 million benefit we recorded in the first quarter of 2024.

Speaker Change: Non interest expense was $2 $6 billion compared to $2 $3 billion in the first quarter of 2020 for our efficiency ratio as presented in our financial supplement was 36, 1% for the quarter.

Chryssa Halley: Turning to our business activity, our Guaranteed Book stood at $4.1 trillion as of the end of the quarter. This included $76 billion of new business acquisition. In single-family, we acquired $64 billion in loans this quarter. This was up 3% year-over-year. Acquisitions continued to be muted due to the mortgage interest rate environment, housing affordability constraints, and limited supply. Purchase loans made up 78% of our first quarter acquisitions. The credit profile of our single-family book remains strong, with a weighted average mark-to-market loan-to-value ratio of 50 percent and a weighted average credit score at origination of 753. Our strong underwriting and servicing standards help to keep our single-family serious delinquency or SDQ rate low at 56 basis points as of the end of March, unchanged from December 2024.

Speaker Change: Turning to our business activity, our guarantee book stood at $4. One trillion dollars as of the ended the quarter. This included $76 billion of new business acquisition.

Speaker Change: And single family, we acquired $64 billion in loans. This quarter. This was up 3% year over year acquisitions continued to be muted due to the mortgage interest rate environment housing affordability constraints and limited supply.

Speaker Change: Purchase loans made up 78% of our first quarter acquisition.

Speaker Change: The credit profile of our single family book remains strong with a weighted average mark to market loan to value ratio of 50% and a weighted average credit score at origination of $7 53.

Speaker Change: Our strong underwriting and servicing standards help to keep our single family serious delinquency or S. DQ rate low at 56 basis points as of the end of March.

Chryssa Halley: in single family credit risk transfer, we executed four transactions in the first quarter, transferring a portion of the credit risk on approximately $51 billion of unpaid principal balance at the time of the transaction. We paid $429 million in premiums during the quarter on our outstanding single-family credit risk transfers. Through primary mortgage insurance and programs such as CAS and CERT, at the end of the quarter, 47% of our single-family book had some form of credit. In multifamily, we acquired $11.8 billion in loans during the quarter compared to $10.1 billion in the first quarter of 2024. Our multifamily book as of the quarter end had a weighted average original loan to value ratio of 63% and a weighted average debt service coverage ratio of 2.0 times.

Speaker Change: Changed from December 2024.

Speaker Change: And single family credit risk transfer, we executed four transactions in the first quarter transferring a portion of the credit risk on approximately $51 billion of unpaid principal balance at the time of the transaction.

Speaker Change: We paid $429 million in premiums during the quarter on our outstanding single family credit risk transfers through.

Speaker Change: Drew primary mortgage insurance and programs such as cast answered at the end of the quarter, 47% of our single family book had some form of credit protection.

Speaker Change: In multifamily, we acquired 11 $8 billion in loans during the quarter compared to $10 $1 billion in the first quarter of 2024.

Speaker Change: Our multifamily book as of the quarter and had a weighted average original loan to value ratio of 63% and a weighted average debt service coverage ratio of 2.0 talent.

Chryssa Halley: According to the MSCI RCA Commercial Property Price Index, property values declined 18% from their peak in the second quarter of 2022 to the first quarter of 2025, but are down just 1% compared to the first quarter of 2024. Our multifamily FDQ rate increased to 63 basis points at the end of March compared to 57 basis points as of the end of December 2024. Because of our unique DAS risk sharing model, where we share a portion of the credit risk on the multifamily loans we acquire, coupled with our MCAS and MCERT programs, essentially all of our multifamily book had some form of credit protection as of the end of March.

Speaker Change: According to the MSCI or see a commercial property price index property values declined 18% from their peak in the second quarter of 2022 to the first quarter of 2025, but are down just 1% compared to the first quarter of.

Speaker Change: <unk> 2024.

Speaker Change: Our multifamily S. DQ rate increased to 63 basis points at the end of March compared to 57 basis points as of the end of December 2024.

Speaker Change: Because of our unique deaths risk sharing model, where we share a portion of the credit risk on the multifamily loans, we acquire coupled with our cash and insert programs essentially all of our multifamily book had some form of credit protection as of the end of March.

Chryssa Halley: At quarter end, we had a $140 billion capital shortfall to our minimum total risk-based capital requirement, excluding buffers, primarily because the $120.8 billion stated value of the senior preferred stock does not qualify as regulatory capital. This shortfall declined by $6 billion compared to the year-end, primarily driven by the increase in our retained earnings and the decrease in our risk-weighted assets. More information about our capital rule and progress towards our regulatory capital requirements are in our financial supplement and 10-Q filed today.

Speaker Change: <unk>.

Speaker Change: At quarter end we.

Speaker Change: We had a $140 billion capital shortfall to our minimum total risk based capital requirements, excluding buffers, primarily because the $128 billion stated value of the senior preferred stock does not qualify as regulatory capital.

Speaker Change: This shortfall declined by $6 billion compared to the year end, primarily driven by the increase in our retained earnings and a decrease in our risk weighted assets.

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

Chryssa Halley: Lastly, I'll touch on our current economic outlook. Our economists currently expect that mortgage rates will average 6.5% for 2025. Total home sales are expected to improve slightly to 4.9 million units compared to the 4.7 million units. being for the full year of 2024. However, the continued low level of homes available for sale has helped to keep home price growth robust. We currently project year-over-year home price growth will be 4.1% in 2025 as measured by the Fannie Mae Home Price Index, compared to 5.3% in 2024. We forecast single-family mortgage originations of about $2.0 trillion in 2025, up from an estimated $1.7 trillion in 2024, with purchases forecasted to make up 73% of single-family mortgage originations this year.

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

Speaker Change: Our economists currently expect that mortgage rates will average six 5% for 2025.

Speaker Change: Total home sales are expected to improve slightly to $4 9 million units compared to the $4 7 million units.

Speaker Change: For the full year of 2024.

Speaker Change: However, the continued low level of homes available for sale has helped to keep home price growth robust.

Speaker Change: We currently project year over year home price growth will be four 1% in 2025 as measured by the Fannie Mae home price index compared to five 3% in 2024, the forecast single family mortgage originations of about 2.0 trillion dollars in <unk>.

Speaker Change: <unk> thousand 25 up from an estimated $1 seven trillion in 2024 with purchases forecasted to make up 73% of single family mortgage originations. This year in multifamily, we expect rent growth to be in the 2% to two 5% range in 2025 if <unk>.

Chryssa Halley: In multifamily, we expect rent growth to be in the 2% to 2.5% range in 2025 if job growth continues at its recent pace and home prices remain elevated. Separately, we believe vacancy rates could rise to 6.25% this year, and we forecast multifamily market originations between $325 billion and $365 billion in 2025, up from $310 billion in 2024.

Speaker Change: Job growth continues at its recent pace and home prices remain elevated.

Speaker Change: Separately, we believe vacancy rates could rise to 625% this year and we forecast multifamily market originations between 325 billion and $365 billion in 2025 up from $310 billion in 2024.

Chryssa Halley: Our expectations are based on many assumptions and our actual results could differ materially from our current expectations.

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 Fannie Mae Dot com, where you'll find a financial supplement with today's filing that provides additional insights into our business. Thank you for joining us.

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.

Operator: That concludes today's call. You may disconnect.

Speaker Change: Today.

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

Operator: Thank you all so much for watching.

Speaker Change: Hum.

Speaker Change: Okay.

Speaker Change: [music].

Operator: be safe