Fannie Mae Swings to a Profit on Record Net Income, Shares Back on the Rise

Andrew Klips  |

The Federal National Mortgage Association, better known as “Fannie Mae” (FNMA), rebounded like a super ball from a massive net loss in 2011 to post record quarterly and annual net income while swinging to a profit in 2012, according to the company’s earnings report on Tuesday.

The D.C.-based mortgage-backed securities company and largest issuer of single-family mortgage-related securities in the secondary market reported net income of $7.57 billion in the fourth quarter of 2012, compared with a net loss of $2.4 billion in the 2011 quarter. The Q4 profits follow net income of $1.8 billion in the third quarter of 2012.

For all of 2012, Fannie Mae booked net income of $17.2 billion, versus a net loss of $16.9 billion for 2011.

The company attributes the drastic improvement to a decline in serious delinquent rates, rising home prices, higher sale prices for company-owned properties and the resolution agreements with Bank of America (BAC).

Since the first quarter of 2010, single-family serious delinquency rates have fallen from 5.47 percent to 3.29 percent in Q4 2012.

“Our financial results improved significantly in 2012 and we expect our earnings to remain strong over the next few years,” said Timothy J. Mayopoulos, president and chief executive officer at Fannie Mae.

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Chief financial officer Susan McFarland echoed Mayopoulos sentiment in commenting, “Solid business fundamentals such as improving performance of our book of business and improvements in the housing market led us to report the largest annual and quarterly net income in the company’s history. We expect to remain profitable for the foreseeable future and return significant value to taxpayers.”

Fannie Mae did take a big step in the way of repaying taxpayers for the enormous bailout package that it received during the market collapse five years ago. The company scratched checks to the Treasury to the tune of $11.6 billion in 2012 to bring its total dividend payment to $31.4 billion against a draw of $116.1 billion. Fannie Mae said in today’s statement that it has made another $4.2 billion dividend payment in the first quarter of 2013, boosting the total to $35.6 billion payments to the Treasury.

No draws were taken in 2012.

Fannie Mae also didn’t book a tax-related gain that could have been approximately $59 billion for the year. When the company decides to book the gain as income, it expects to make a “significant” dividend payment to the Treasury following the release of the valuation allowance on its deferred tax assets.

Fannie Mae also is also benefiting from payments received from Bank of America pertaining to breaches of selling representations and warranties on specified single-family loans delivered to Fannie Mae. Among other parts of the resolution agreement, in January 2013, BAC repurchased $6.6 billion in loans, made a cash payment of $3.6 billion and made an initial cash payment to Fannie Mae of $518 million related to mortgage insurance claims.

Once a stock stalwart trading around $70 per share in 2007, FNMA absolutely collapsed with the bursting housing bubble, losing 99.6 percent of its value in about one year. Shares have traded as low as 19 cents in 2012, but have been eking upward since, including a run from 28 cents in mid-March to as high as $1.47 in about one week. Shares retraced from those levels to dip as low as 51 cents on the last trading day of March, but have galloped back ahead as high as $1.00 in Tuesday trading.

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