Fannie, Freddie earnings improve amid signs of housing market recovery

Market has weathered coronavirus better than expected, Fannie Mae exec says

Government-controlled mortgage giants Fannie Mae and Freddie Mac said earnings improved in the second quarter, adding to evidence of a rebound in the U.S. housing market.

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Fannie Mae, the larger of the two companies, said 5.7% of the single-family loans it guarantees -- representing about 972,000 mortgages -- had suspended payments as of June 30, down from the 7% it reported May 1, when it released first-quarter earnings.

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“We believe that some of the borrowers entered into forbearance prematurely -- in case of economic hardship,” Chief Financial Officer Celeste Mellet Brown said in a call with reporters

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The improvement came amid a decline in unemployment as parts of the economy reopened. More recent government data on unemployment claims, however, suggest that the labor market’s recovery may be stalling amid a resurgence in coronavirus cases.

Fannie Mae said Thursday that its net income rose to $2.55 billion in the second quarter from $461 million in the previous three months. Net income in the second quarter of 2019 was $3.43 billion.

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Fannie’s latest results were buoyed by a decline in credit-related expenses, which had ballooned in the first quarter as the company braced for a wave of homeowners requesting a break on their mortgage payments because of the pandemic. A surge in refinancing activity to a 17-year-high due to record-low interest rates also helped the company’s bottom line.

Sales of previously owned homes rose 20.7% in June over the prior month to a seasonally adjusted annual rate of 4.72 million, according to data from the National Association of Realtors released last week, the biggest monthly increase on record going back to 1968.

(AP Photo/Steve Helber)

As a result of the improved economic outlook, Fannie trimmed its estimate for the percentage of single-family borrowers who will be forced into forbearance by the pandemic to 12.5% from 15%.

Ms. Mellet Brown also said the housing market has held up better than initially expected, with home prices continuing to rise amid low borrowing costs and a shortage of available homes.

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Fannie’s smaller sister company, Freddie Mac, reported net income of $1.78 billion, compared with $173 million in the first quarter of this year and $1.51 billion a year earlier.

Fannie and Freddie run the plumbing meant to make U.S. mortgages more readily available and affordable. The 30-year, fixed-rate mortgage, by far the most popular in the U.S., might not exist without them.

The companies don’t make mortgages but buy them from lenders and package them into securities to sell to investors, and they provide guarantees to investors in case the mortgages go bad. The two companies guarantee nearly half of the $11 trillion U.S. mortgage market.