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8-K - 8-K - FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE | w84608e8vk.htm |
EX-99.2 - EX-99.2 - FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE | w84608exv99w2.htm |
Exhibit 99.1
Resource Center: 1-800-732-6643
Contact:
|
Katherine Constantinou | |
202-752-5403 | ||
Number:
|
5552a | |
Date:
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November 8, 2011 |
Fannie Mae Reports Third-Quarter 2011 Results
Company Focused on Providing Liquidity to the Mortgage Market,
Reducing Losses on its Legacy Book, and Growing a Strong New Book
WASHINGTON, DC Fannie Mae (FNMA/OTC) today reported a net loss of $5.1 billion in the third
quarter of 2011, compared to a net loss of $2.9 billion in the second quarter of the year. The
companys third-quarter loss was driven primarily by two factors: $4.9 billion in credit-related
expenses, the substantial majority of which were related to its legacy (pre-2009) book of business;
and $4.5 billion in fair value losses driven primarily by losses on risk management derivatives due
to a significant decline in swap interest rates during the quarter. These losses were partially
offset by $5.5 billion in net revenues.
The decline in interest rates during the third quarter had a significant impact on the companys
derivative losses. However, these losses were mostly offset by fair value gains in the period
related to the companys hedged mortgage investments, only a portion of which are recorded at fair value
in its financial statements.
Our results in the third quarter were significantly
affected by continued weakness in the housing market and the economy overall. Despite these challenges,
we are making solid progress. We are growing a strong new book of business that now accounts for
nearly half of our overall single-family guaranty book of
business, said Michael J. Williams,
president and chief executive officer. We help homeowners to avoid foreclosure and provide
liquidity to enable working families to buy a home or secure quality affordable rental
housing. We are committed to building a stronger housing finance system for the future,
and strengthening Fannie Mae to deliver value to customers, families,
taxpayers, and the industry.
Fannie Mae is working to reduce losses on our legacy book and limit taxpayer exposure, said Susan
McFarland, executive vice president and chief financial officer. Through efforts like the
Servicing Alignment Initiative, we have created a consistent and transparent set of standards for
servicing our loans. Our goal is to get to borrowers early in the delinquency process and to find
a solution that fits their needs. We believe these standards are good for the borrower, good for
the industry, and good for our company.
Third-Quarter 2011 Results |
1 |
The companys net worth deficit of $7.8 billion as of September 30, 2011 reflects the recognition
of its total comprehensive loss of $5.3 billion and its payment to Treasury of $2.5 billion in
senior preferred stock dividends during the third quarter of 2011. The Acting Director of the
Federal Housing Finance Agency (FHFA) will submit a request to Treasury on Fannie Maes behalf
for $7.8 billion to eliminate the companys net worth deficit. Upon receipt of those funds, the
companys total obligation to Treasury for its senior preferred stock, which will require an
annualized dividend payment of $11.3 billion, will be $112.6 billion. The table below shows the
amount of Fannie Maes requested draws from Treasury and dividend payments to Treasury since
entering into conservatorship on September 6, 2008.
Treasury Draw Requests and Dividend Payments
(1) | Treasury draw requests do not include the initial $1.0 billion liquidation preference of Fannie Maes senior preferred stock, for which we did not receive any cash proceeds. | |
(2) | Fannie Mae paid dividends of $31 million in the fourth quarter of 2008 and $25 million in the first quarter of 2009. | |
(3) | Represents the draw required and requested based on Fannie Maes net worth deficit for the quarters presented. Draw requests were funded in the quarter following each quarterly net worth deficit. | |
(4) | Represents quarterly cash dividends paid during the quarters presented by Fannie Mae to Treasury, based on an annual rate of 10% per year on the aggregate liquidation preference of the senior preferred stock. |
Third-Quarter 2011 Results |
2 |
PROVIDING LIQUIDITY AND SUPPORT TO THE MARKET
Fannie Mae has continued to provide liquidity and support to the U.S. mortgage market in a number
of important ways:
The company served as a stable source of liquidity for purchases of homes and multifamily rental
housing, as well as for refinancing existing mortgages. Fannie Mae
provided approximately $2.1 trillion in
liquidity to the mortgage market from January 1, 2009 through September 30, 2011 through its
purchases and guarantees of mortgage loans, including more than 7.6 million single-family mortgage
loans, which enabled borrowers to purchase homes or refinance mortgages, and multifamily loans that
financed nearly 967,000 units of multifamily housing.
| The company has been a consistent market presence as it continued to provide liquidity to the mortgage market even when other sources of capital exited the market, as evidenced by the events of the last few years. It is estimated that Fannie Mae, Freddie Mac, and Ginnie Mae collectively guaranteed more than 80 percent of single-family mortgages originated in the United States since January 1, 2009. | ||
| The company has strengthened its underwriting and eligibility standards to support sustainable homeownership, enabling borrowers to have access to a variety of conforming mortgage products, including long-term, fixed-rate mortgages, such as the prepayable 30-year fixed-rate mortgage that protects homeowners from interest rate swings. | ||
| The company helped more than 960,000 homeowners struggling to pay their mortgages work out their loans from January 1, 2009 through September 30, 2011, which helped to support neighborhoods, home prices, and the housing market. Workouts refer to home retention solutions, such as modifications, repayment plans, and forbearances, as well as foreclosure alternatives, such as preforeclosure sales and deeds-in-lieu of foreclosure. | ||
| The company continued to support affordability in the multifamily rental market. More than 85 percent of the multifamily units it financed during 2009 and 2010 were affordable to families earning at or below the median income in their area. | ||
| The company remained the largest single issuer of mortgage-related securities in the secondary market in the third quarter of 2011, with an estimated market share of new single-family mortgage-related securities issuances of 43.3 percent, compared to 43.2 percent in the second quarter of 2011 and 44.5 percent in the third quarter of 2010. Fannie Mae also remained a constant source of liquidity in the multifamily market. As of June 30, 2011 (the latest date for which information was available), the company owned or guaranteed approximately 20 percent of the outstanding debt on multifamily properties. |
In the first nine months of 2011, Fannie Mae purchased or guaranteed approximately $445 billion in
loans, measured by unpaid principal balance, which included approximately $51 billion in delinquent
loans purchased from its single-family mortgage-backed securities (MBS) trusts. Excluding
delinquent loans purchased from its MBS trusts, Fannie Maes purchases and guarantees during the
first nine months of 2011 enabled its lender customers to finance approximately 1,826,000
single-family conventional loans and loans for approximately 289,000 units in multifamily
properties.
Third-Quarter 2011 Results |
3 |
CREDIT QUALITY
New Single-Family Book of Business: 49 percent of Fannie Maes single-family guaranty book
of business as of September 30, 2011 consisted of loans it had purchased or guaranteed since the
beginning of 2009. The companys new single-family book of business has a strong overall credit
profile and is performing well. While it is too early to know how loans in its new single-family
book of business will ultimately perform, the company expects that these loans will be profitable
over their lifetime, meaning the companys fee income on these loans will exceed the companys
credit losses and administrative costs for them. If future macroeconomic conditions turn out to be
more adverse than the companys expectations, these loans could become unprofitable.
Conventional single-family loans added to Fannie Maes book of business since January 1, 2009 have
a weighted average loan-to-value ratio at origination of 68 percent, and a weighted average credit
score at origination of 761. For more information on the expected lifetime profitability of the
companys new single-family book of business, please refer to the discussion around Table 2 in the
companys quarterly report on Form 10-Q for the quarter ended September 30, 2011.
2005 2008 Single-Family Book of Business: The single-family credit losses the company
realized from January 1, 2009 through September 30, 2011, combined with the amounts the company has
reserved for single-family credit losses as of September 30, 2011, total approximately $135
billion. The substantial majority of these losses were attributable to single-family loans the company
purchased or guaranteed from 2005 through 2008. The company expects that future defaults on loans
in its legacy book and the resulting charge-offs will occur over a period of years.
The 2005 to 2008 acquisitions are becoming a smaller percentage of the companys single-family
guaranty book of business, having decreased from 39 percent of its single-family guaranty book of
business as of December 31, 2010 to 33 percent as of September 30, 2011.
Fannie Maes single-family serious delinquency rate has decreased each quarter since the first
quarter of 2010. This decrease is primarily the result of home retention solutions, as well as
foreclosure alternatives and completed foreclosures. The decrease also is attributable to the
companys acquisition of loans with a stronger credit profile since the beginning of 2009, as these
loans have become an increasingly larger portion of the single-family guaranty book of business,
resulting in a smaller percentage of the companys loans becoming seriously delinquent. The
company expects serious delinquency rates will continue to be affected in the future by home price
changes, changes in other macroeconomic conditions, the length of the foreclosure process, the
volume of loan modifications, and the extent to which borrowers with modified loans continue to
make timely payments. In addition, due to circumstances in the foreclosure environment,
foreclosures are proceeding at a slow pace, which has resulted in loans remaining seriously
delinquent in the companys book of business for a longer time. This has caused the companys
serious delinquency rate to decrease more slowly in the last year than it would have if the pace of
foreclosures had been faster.
Third-Quarter 2011 Results |
4 |
STRATEGIES TO REDUCE CREDIT LOSSES ON THE LEGACY BOOK
To reduce the credit losses Fannie Mae ultimately incurs on its legacy book of business, the
company has been focusing its efforts on several strategies, including reducing defaults by
offering home retention solutions, such as loan modifications. Successful modifications allow
borrowers who were having problems making their pre-modification mortgage payments to remain in
their homes. While loan modifications contribute to higher credit-related expenses in the near
term, the company believes that successful modifications will ultimately reduce the companys
credit losses over the long term from what they otherwise would have been if the company had
foreclosed on the loans. Fannie Mae completed approximately 161,000 loan modifications in the first
nine months of 2011, bringing the total number of loan modifications the company has completed
since January 2009 to more than 660,000. The ultimate long-term success of the companys current
modification efforts is uncertain and will be highly dependent on economic factors, such as
unemployment rates, household wealth and income, and home prices.
As the company works to reduce credit losses, it also seeks to assist distressed borrowers, help
stabilize communities, and support the housing market. In dealing with distressed borrowers,
Fannie Mae first seeks home retention solutions that enable them to keep their homes before turning
to foreclosure alternatives. When there is no viable home retention solution or foreclosure
alternative that can be applied, the company seeks to move to foreclosure expeditiously. The goal
of these efforts is to help minimize delinquencies that can adversely impact local home values and
destabilize communities, as well as lower costs to Fannie Mae.
Improving servicing standards and execution is another key aspect of the companys strategy to
reduce its credit losses. The performance of the companys mortgage servicers is critical to its
success in reducing defaults, completing foreclosure alternatives, and managing workout and
foreclosure timelines efficiently, because servicers are the primary point of contact with
borrowers. Fannie Mae has taken a number of steps to improve the servicing of its delinquent loans.
| In June 2011, the company issued new standards for mortgage servicers under FHFAs Servicing Alignment Initiative. The Initiative is aimed at establishing consistency in the servicing of delinquent loans owned or guaranteed by Fannie Mae and Freddie Mac. Among other things, the new servicing standards, which became effective October 1, 2011, are designed to result in earlier, more frequent, and more effective contact with borrowers, and to improve servicer performance by providing servicers monetary incentives for exceeding loan workout benchmarks and by imposing fees on servicers for failing to meet loan workout benchmarks or foreclosure timelines. | ||
| In some cases, Fannie Mae transfers servicing on loan populations that include loans with higher-risk characteristics to special servicers with whom the company has worked to develop high-touch protocols for servicing these loans. These protocols include lowering the ratio of loans per servicer employee, prescribing borrower outreach strategies to be used at earlier stages of delinquency, and providing distressed borrowers a single point of contact to resolve issues. Transferring servicing on higher-risk loans enables the borrowers (and loans) to benefit from these high-touch protocols while increasing the original servicers capacity to service the remaining loans, creating an opportunity to improve service to the remaining borrowers. |
Third-Quarter 2011 Results |
5 |
| In September 2011, Fannie Mae issued its first ratings of servicers performance under its Servicer Total Achievement and Rewards (STAR) program. The STAR program is designed to encourage improvements in customer service and foreclosure prevention outcomes for homeowners by rating servicers on their performance in these areas. |
While Fannie Mae believes these steps will improve the servicing on its loans, ultimately the
company is dependent on servicers willingness, efficiency, and ability to implement its home
retention solutions and foreclosure alternatives, and to manage timelines for workouts and
foreclosures. For more information on the companys strategies to reduce credit losses on its
legacy book, please refer to the companys quarterly report on Form 10-Q for the quarter ended
September 30, 2011.
The company believes that home retention solutions are most effective in preventing defaults when
completed at an early stage of delinquency. Similarly, the companys foreclosure alternatives are
more likely to be successful in reducing its loss severity if they are executed expeditiously.
Accordingly, providing potential home retention solutions to delinquent borrowers early in the
delinquency and, where no home retention solutions are available, reducing delays in proceeding to
foreclosure is a fundamental component of the companys strategy to reduce its credit losses and
help stabilize the housing market.
HOME RETENTION SOLUTIONS AND FORECLOSURE ALTERNATIVES
Loan Workouts: During the third quarter of 2011, Fannie Mae completed more than 87,000
single-family loan workouts, including more than 68,000 home-retention solutions (modifications,
repayment plans, and forbearances). Details of the companys home-retention solutions and
foreclosure alternatives include:
| Loan modifications, which consist of permanent modifications under the Treasury Departments Home Affordable Modification Program and Fannie Maes own modification options, increased in the third quarter of 2011 to 60,025 from 50,336 in the second quarter of 2011. These figures do not include modifications in trial periods. | ||
| Repayment plans/forbearances of 8,202 in the third quarter of 2011, compared with 8,683 in the second quarter of 2011. | ||
| Preforeclosure sales and deeds-in-lieu of foreclosure of 19,306 in the third quarter of 2011, compared with 21,176 in the second quarter of 2011. |
Homeowner Initiatives: In the third quarter of 2011, Fannie Mae continued to develop
programs and invest in initiatives designed to help keep people in homes, assist prospective
homeowners, and support the mortgage and housing markets overall. As of September 30, 2011, Fannie
Mae had established eleven Mortgage Help Centers across the nation to accelerate the response time
for struggling borrowers with loans owned by Fannie Mae. In the first nine months of 2011, these
centers helped borrowers obtain nearly 4,100 home retention plans. The company also uses direct
mail and phone calls to encourage homeowners to pursue home retention solutions and foreclosure
alternatives, and has established partnerships with counseling agencies in ten states across the
country to provide similar services.
Third-Quarter 2011 Results |
6 |
Refinancing Initiatives: Through the companys Refi PlusTM initiative, which
provides expanded refinance opportunities for eligible Fannie Mae borrowers, and includes Home
Affordable Refinance Program (HARP) loans, the company acquired or guaranteed approximately
536,000 loans in the first nine months of 2011 that helped borrowers obtain more affordable monthly
payments or a more stable mortgage product. Loans refinanced through the Refi Plus initiative in the first nine months of 2011
reduced borrowers monthly mortgage payments by an average of $171. The company may incur
additional credit-related expenses as a result of recently announced changes to HARP. However, these
refinancing activities may help prevent future delinquencies and defaults because loans refinanced
under the program reduce the borrowers monthly payments or otherwise should provide more
sustainability than the borrowers old loans (for example, by having a fixed rate instead of an
adjustable rate). At this time, Fannie Mae does
not know how many of these refinances it will acquire. For more information on the recently
announced HARP changes, please refer to the companys quarterly report on Form 10-Q for the quarter
ended September 30, 2011.
FORECLOSURES AND REO
Fannie Mae acquired 45,194 single-family real-estate owned (REO) properties, primarily through
foreclosure, in the third quarter of 2011, compared with 53,697 in the second quarter of 2011.
Fannie Mae disposed of 58,297 single-family REO in the third quarter of 2011, compared with 71,202
in the second quarter of 2011. As of September 30, 2011, the companys inventory of single-family
REO properties was 122,616, compared with 135,719 as of June 30, 2011. The carrying value of the
companys single-family REO was $11.0 billion as of September 30, 2011, compared with $12.5 billion
as of June 30, 2011.
The companys single-family foreclosure rate was 1.15 percent on an annualized basis in the first
nine months of 2011, compared with 1.20 percent in the first six months of 2011 and 1.61 percent in
the first nine months of 2010. This reflects the annualized number of single-family properties
acquired through foreclosure as a percentage of the total number of loans in Fannie Maes
conventional single-family guaranty book of business.
The changing foreclosure environment has significantly lengthened the time it takes to foreclose on
a mortgage loan in many states, which has slowed the pace of Fannie Maes REO property
acquisitions. The increase in foreclosure timelines also has increased Fannie Maes credit-related
expenses and negatively affected its single-family serious delinquency rates. Moreover, Fannie Mae
believes these changes in the foreclosure environment will delay the recovery of the housing market
because it will take longer to clear the housing markets supply of distressed homes, which
typically sell at a discount to non-distressed homes and therefore negatively affect overall home
prices.
SUMMARY OF THIRD-QUARTER 2011 RESULTS
Fannie Mae reported a net loss of $5.1 billion for the third quarter of 2011, compared to a net
loss of $2.9 billion in the second quarter of 2011. The net worth deficit of $7.8 billion as of
September 30, 2011 takes into account dividends paid on senior preferred stock held by Treasury.
Third-Quarter 2011 Results |
7 |
(Dollars in millions, except per share amounts)(1) | 3Q11 | 2Q11 | Variance | 3Q11 | 3Q10 | Variance | ||||||||||||||||||
Net interest income |
$ | 5,186 | $ | 4,972 | $ | 214 | $ | 5,186 | $ | 4,776 | $ | 410 | ||||||||||||
Fee and other income |
291 | 265 | 26 | 291 | 304 | (13 | ) | |||||||||||||||||
Net revenues |
5,477 | 5,237 | 240 | 5,477 | 5,080 | 397 | ||||||||||||||||||
Investment gains, net |
73 | 171 | (98 | ) | 73 | 82 | (9 | ) | ||||||||||||||||
Net other-than-temporary impairments |
(262 | ) | (56 | ) | (206 | ) | (262 | ) | (326 | ) | 64 | |||||||||||||
Fair value (losses) gains, net |
(4,525 | ) | (1,634 | ) | (2,891 | ) | (4,525 | ) | 525 | (5,050 | ) | |||||||||||||
Administrative expenses |
(591 | ) | (569 | ) | (22 | ) | (591 | ) | (730 | ) | 139 | |||||||||||||
Credit-related expenses(2) |
(4,884 | ) | (6,059 | ) | 1,175 | (4,884 | ) | (5,561 | ) | 677 | ||||||||||||||
Other non-interest expenses(3) |
(373 | ) | (75 | ) | (298 | ) | (373 | ) | (410 | ) | 37 | |||||||||||||
Net losses and expenses |
(10,562 | ) | (8,222 | ) | (2,340 | ) | (10,562 | ) | (6,420 | ) | (4,142 | ) | ||||||||||||
Loss before federal income taxes |
(5,085 | ) | (2,985 | ) | (2,100 | ) | (5,085 | ) | (1,340 | ) | (3,745 | ) | ||||||||||||
Benefit for federal income taxes |
| 93 | (93 | ) | | 9 | (9 | ) | ||||||||||||||||
Net loss |
(5,085 | ) | (2,892 | ) | (2,193 | ) | (5,085 | ) | (1,331 | ) | (3,754 | ) | ||||||||||||
Less: Net income attributable to the
noncontrolling interest |
| (1 | ) | 1 | | (8 | ) | 8 | ||||||||||||||||
Net loss attributable to Fannie Mae |
$ | (5,085 | ) | $ | (2,893 | ) | $ | (2,192 | ) | $ | (5,085 | ) | $ | (1,339 | ) | $ | (3,746 | ) | ||||||
Total comprehensive loss
attributable to Fannie Mae |
$ | (5,282 | ) | $ | (2,891 | ) | $ | (2,391 | ) | $ | (5,282 | ) | $ | (437 | ) | $ | (4,845 | ) | ||||||
Preferred stock dividends |
$ | (2,494 | ) | $ | (2,282 | ) | $ | (212 | ) | $ | (2,494 | ) | $ | (2,116 | ) | $ | (378 | ) |
(1) | Certain prior period amounts have been reclassified to conform to the current period presentation. | |
(2) | Consists of provision for loan losses, provision for guaranty losses and foreclosed property expense (income). | |
(3) | Consists of debt extinguishment losses, net and other expenses. | |
Net revenues were $5.5 billion in the third quarter of 2011, up 5 percent from $5.2 billion in
the second quarter of 2011, due primarily to an increase in net interest income. Net interest
income was $5.2 billion, up 4 percent from $5.0 billion in the second quarter of 2011.
Credit-related expenses, which are the total provision for credit losses plus foreclosed property
expense, were $4.9 billion in the third quarter of 2011, down from $6.1 billion in the second
quarter of 2011. The decrease in the companys credit-related expenses in the third quarter of 2011
was driven by a lower provision on individually impaired loans as the continued lower interest rate
environment improved the companys expected cash flow projections on these loans, therefore
reducing the companys estimated impairment.
Credit losses, which the company defines generally as net charge-offs plus foreclosed property
expense, excluding the effect of certain fair-value losses, were $4.5 billion in the third quarter
of 2011, compared with $3.9 billion in the second quarter of 2011. The increase in credit losses
was primarily due to an increase in foreclosed property expense.
Third-Quarter 2011 Results |
8 |
Total loss reserves, which reflect an estimate of the probable losses the company has incurred in
its guaranty book of business, increased to $75.6 billion as of September 30, 2011, compared with
$74.8 billion as of June 30, 2011. The total loss reserve coverage to total nonperforming loans was
37.07 percent as of September 30, 2011, compared with 36.91 percent as of June 30, 2011, and 30.85
percent as of December 31, 2010. The continued stress on a broad segment of borrowers from
persistent high levels of unemployment and underemployment, and the prolonged decline in home
prices have caused the companys total loss reserves to remain high for the past few years.
Net fair value losses were $4.5 billion in the third quarter of 2011, driven primarily by fair
value losses on Fannie Maes risk management derivatives due to a significant decline in swap
interest rates during the quarter, compared with net fair value losses of $1.6 billion in the
second quarter of 2011.
NET WORTH AND U.S. TREASURY FUNDING
The Acting Director of FHFA will request $7.8 billion of funds from Treasury on the companys
behalf under the terms of the senior preferred stock purchase agreement between Fannie Mae and
Treasury to eliminate the companys net worth deficit as of September 30, 2011. Fannie Maes
third-quarter dividend of $2.5 billion on its senior preferred stock held by Treasury was declared
by FHFA and paid by the company on September 30, 2011.
In September 2011, Treasury provided to the company $5.1 billion to cure its net worth deficit as
of June 30, 2011. As a result of this draw, the aggregate liquidation preference of the senior
preferred stock increased from $99.7 billion to $104.8 billion as of September 30, 2011. It will
increase to $112.6 billion upon the receipt of funds from Treasury to eliminate the companys
third-quarter 2011 net worth deficit, which will require an annualized dividend payment of
$11.3 billion. This amount exceeds the companys reported annual net income for any year
since its inception.
Through September 30, 2011, Fannie Mae has paid an aggregate of $17.2 billion to Treasury in
dividends on the senior preferred stock.
BUSINESS SEGMENT RESULTS
Fannie Mae conducts its activities through three complementary businesses: its Single-Family
business, its Multifamily business, and its Capital Markets group. The companys Single-Family and
Multifamily businesses work with Fannie Maes lender customers, who deliver mortgage loans that the
company purchases and securitizes into Fannie Mae MBS. The Capital Markets group manages the
companys investment activity in mortgage-related assets, funding investments primarily with
proceeds received from the issuance of Fannie Mae debt securities in the domestic and international
capital markets. The Capital Markets group also provides liquidity to the mortgage market through
short-term financing and other activities.
Single-Family guaranty book of business was $2.84 trillion as of September 30, 2011 compared with
$2.88 trillion as of June 30, 2011. Single-Family guaranty fee income for both the second and third
quarter of 2011 was $1.9 billion. The Single-Family business lost $3.7 billion in the third quarter
of 2011, compared with $5.0 billion in the second quarter of 2011, due primarily to credit-related
expenses of $4.8 billion, the substantial majority of which were attributable to loans purchased or
guaranteed prior to 2009.
Third-Quarter 2011 Results |
9 |
Multifamily guaranty book of business was $193.3 billion as of September 30, 2011, compared with
$191.5 billion as of June 30, 2011. Multifamily recorded credit-related expenses of $102 million in
the third quarter of 2011, compared with credit-related expenses of $126 million in the second
quarter of 2011. Multifamily earned $72 million in the third quarter of 2011, compared with $87
million in the second quarter of 2011.
Capital Markets net interest income for both the second and third quarter of 2011 was $3.9
billion. Fair value losses were $4.7 billion, compared with fair value losses of $1.5 billion in
the second quarter of 2011. The Capital Markets mortgage investment portfolio balance decreased to $722.2
billion as of September 30, 2011, compared with $731.8 billion as of June 30, 2011, resulting from
purchases of $42.1 billion, liquidations of $33.8 billion, and sales of $17.9 billion during the
quarter. The Capital Markets group lost $711 million in the third quarter of 2011, compared with
$2.8 billion earned in the second quarter of 2011. Capital Markets third-quarter loss was driven
by losses on the companys risk management derivatives.
The company provides further discussion of its financial results and condition, credit performance,
fair value balance sheets, and other matters in its quarterly report on Form 10-Q for the quarter
ended September 30, 2011, which was filed today with the Securities and Exchange Commission.
Further information about the companys credit performance, the characteristics of its guaranty
book of business, the drivers of its credit losses, its foreclosure-prevention efforts, and other
measures is contained in the 2011 Third-Quarter Credit Supplement on Fannie Maes Web site,
www.fanniemae.com.
# # #
In this release, the company has presented a number of estimates, forecasts, expectations, and
other forward-looking statements regarding the companys future financial results; the
profitability of its loans; the impact of successful loan modifications; FHFAs future requests to
Treasury on Fannie Maes behalf; Fannie Maes future serious delinquency rates, credit losses,
credit-related expenses, defaults, and charge-offs; its draws from and dividends to be paid to
Treasury; the performance and caliber of loans it has acquired and will acquire; the impact of the
changing foreclosure environment; the impact of the companys actions on its delinquencies,
defaults, loss severities, costs and credit losses; the impact of the companys actions on
customers, families, taxpayers, communities, home values, the housing market, the housing industry
and the housing finance system; the impact of the companys actions to improve the servicing on its
loans; and the impact of HARP refinances and other refinancing activities on the companys future
financial results, delinquencies and defaults. These estimates, forecasts, expectations, and
statements are forward-looking statements and are based on the companys current assumptions
regarding numerous factors, including assumptions about future home prices and the future
performance of its loans. The companys future estimates of these amounts, as well as the actual
amounts, may differ materially from its current estimates as a result of home price changes,
interest rate changes, unemployment, other macroeconomic variables, government policy matters,
changes in generally accepted accounting principles, credit availability, social behaviors, the
volume of loans it modifies, the effectiveness of its loss mitigation strategies, management of its
real estate owned inventory and pursuit of contractual remedies, changes in the fair value of its
assets and liabilities, impairments of its assets, the adequacy of its loss reserves, its ability
to maintain a positive net worth, effects from activities the company takes to support the mortgage
market and help homeowners, the conservatorship and its effect on the companys business, the
investment by Treasury and its effect on the companys business, changes in the structure and
regulation of the financial services industry, the companys ability to access the debt markets,
disruptions in the housing, credit, and stock markets, government investigations and litigation,
the performance of the companys servicers, conditions in the foreclosure environment, and many
other factors. Changes in the companys underlying assumptions and actual outcomes, which could be
affected by the economic environment, government policy, and many other factors, including those
discussed in the Risk Factors sections of the companys annual report on Form 10-K for the year
ended December 31, 2010 and quarterly report on Form 10-Q for the quarter ended September 30, 2011
and elsewhere in this release, could result in actual results being materially different from what
is set forth in the forward-looking statements.
Fannie Mae provides Web site addresses in its news releases solely for readers information. Other
content or information appearing on these Web sites is not part of this release.
Fannie Mae exists to expand affordable housing and bring global capital to local communities in
order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in Americas
secondary mortgage market to enhance the liquidity of the mortgage market by purchasing or guaranteeing mortgage loans originated by
mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those
who house America.
Third-Quarter 2011 Results |
10 |
ANNEX I
FANNIE MAE
(In conservatorship)
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in millions, except share amounts)
FANNIE MAE
(In conservatorship)
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in millions, except share amounts)
As of | ||||||||
September 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
ASSETS
|
||||||||
Cash and cash equivalents (includes $3 and $348, respectively,
related to consolidated trusts)
|
$ | 24,307 | $ | 17,297 | ||||
Restricted cash (includes $51,774 and $59,619, respectively,
related to consolidated trusts)
|
55,961 | 63,678 | ||||||
Federal funds sold and securities purchased under agreements to
resell or similar arrangements
|
35,950 | 11,751 | ||||||
Investments in securities:
|
||||||||
Trading, at fair value (includes $20 and $21, respectively,
related to consolidated trusts)
|
68,149 | 56,856 | ||||||
Available-for-sale,
at fair value (includes $1,429 and $1,055, respectively, related
to consolidated trusts)
|
82,710 | 94,392 | ||||||
Total investments in securities
|
150,859 | 151,248 | ||||||
Mortgage loans:
|
||||||||
Loans held for sale, at lower of cost or fair value (includes
$53 and $661, respectively, related to consolidated trusts)
|
309 | 915 | ||||||
Loans held for investment, at amortized cost:
|
||||||||
Of Fannie Mae
|
385,247 | 407,228 | ||||||
Of consolidated trusts (includes $3,361 and $2,962,
respectively, at fair value and loans pledged as collateral that
may be sold or repledged of $6,993 and $2,522, respectively)
|
2,583,699 | 2,577,133 | ||||||
Total loans held for investment
|
2,968,946 | 2,984,361 | ||||||
Allowance for loan losses
|
(71,435 | ) | (61,556 | ) | ||||
Total loans held for investment, net of allowance
|
2,897,511 | 2,922,805 | ||||||
Total mortgage loans
|
2,897,820 | 2,923,720 | ||||||
Accrued interest receivable, net (includes $8,451 and $8,910,
respectively, related to consolidated trusts)
|
10,862 | 11,279 | ||||||
Acquired property, net
|
12,195 | 16,173 | ||||||
Other assets
|
25,923 | 26,826 | ||||||
Total assets
|
$ | 3,213,877 | $ | 3,221,972 | ||||
LIABILITIES AND DEFICIT | ||||||||
Liabilities:
|
||||||||
Accrued interest payable (includes $9,449 and $9,712,
respectively, related to consolidated trusts)
|
$ | 12,928 | $ | 13,764 | ||||
Federal funds purchased and securities sold under agreements to
repurchase
|
| 52 | ||||||
Debt:
|
||||||||
Of Fannie Mae (includes $845 and $893, respectively, at fair
value)
|
744,803 | 780,044 | ||||||
Of consolidated trusts (includes $3,840 and $2,271,
respectively, at fair value)
|
2,446,973 | 2,416,956 | ||||||
Other liabilities (includes $674 and $893, respectively, related
to consolidated trusts)
|
16,964 | 13,673 | ||||||
Total liabilities
|
3,221,668 | 3,224,489 | ||||||
Commitments and contingencies (Note 14)
|
| | ||||||
Fannie Mae stockholders equity (deficit):
|
||||||||
Senior preferred stock, 1,000,000 shares issued and
outstanding
|
104,787 | 88,600 | ||||||
Preferred stock, 700,000,000 shares are
authorized555,374,922 and 576,868,139 shares issued
and outstanding, respectively
|
19,130 | 20,204 | ||||||
Common stock, no par value, no maximum
authorization1,308,762,703 and 1,270,092,708 shares
issued, respectively; 1,157,757,042 and
1,118,504,194 shares outstanding, respectively
|
687 | 667 | ||||||
Accumulated deficit
|
(123,359 | ) | (102,986 | ) | ||||
Accumulated other comprehensive loss
|
(1,696 | ) | (1,682 | ) | ||||
Treasury stock, at cost, 151,005,661 and
151,588,514 shares, respectively
|
(7,402 | ) | (7,402 | ) | ||||
Total Fannie Mae stockholders deficit
|
(7,853 | ) | (2,599 | ) | ||||
Noncontrolling interest
|
62 | 82 | ||||||
Total deficit
|
(7,791 | ) | (2,517 | ) | ||||
Total liabilities and deficit
|
$ | 3,213,877 | $ | 3,221,972 | ||||
See Notes to Condensed Consolidated Financial Statements
Third-Quarter 2011 Results |
11 |
FANNIE
MAE
(In conservatorship)
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(Dollars and shares in millions, except per share amounts)
(In conservatorship)
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(Dollars and shares in millions, except per share amounts)
For the Three |
For the Nine |
|||||||||||||||
Months Ended |
Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest income:
|
||||||||||||||||
Trading securities
|
$ | 274 | $ | 310 | $ | 822 | $ | 955 | ||||||||
Available-for-sale
securities
|
1,160 | 1,313 | 3,525 | 4,175 | ||||||||||||
Mortgage loans (includes $30,633 and $32,807, respectively, for
the three months ended and $94,111 and $100,810, respectively,
for the nine months ended related to consolidated trusts)
|
34,334 | 36,666 | 105,257 | 111,917 | ||||||||||||
Other
|
26 | 31 | 79 | 111 | ||||||||||||
Total interest income
|
35,794 | 38,320 | 109,683 | 117,158 | ||||||||||||
Interest expense:
|
||||||||||||||||
Short-term debt (includes $3 and $4, respectively, for the three
months ended and $8 and $9, respectively, for the nine months
ended related to consolidated trusts)
|
66 | 194 | 254 | 479 | ||||||||||||
Long-term debt (includes $27,157 and $28,878, respectively, for
the three months ended and $82,928 and $90,379, respectively,
for the nine months ended related to consolidated trusts)
|
30,542 | 33,350 | 94,311 | 104,907 | ||||||||||||
Total interest expense
|
30,608 | 33,544 | 94,565 | 105,386 | ||||||||||||
Net interest income
|
5,186 | 4,776 | 15,118 | 11,772 | ||||||||||||
Provision for loan losses
|
(4,159 | ) | (4,696 | ) | (20,548 | ) | (20,930 | ) | ||||||||
Net interest income (loss) after provision for loan losses
|
1,027 | 80 | (5,430 | ) | (9,158 | ) | ||||||||||
Investment gains, net
|
73 | 82 | 319 | 271 | ||||||||||||
Other-than-temporary
impairments
|
(232 | ) | (366 | ) | (317 | ) | (600 | ) | ||||||||
Noncredit portion of
other-than-temporary
impairments recognized in other comprehensive income
|
(30 | ) | 40 | (45 | ) | (99 | ) | |||||||||
Net
other-than-temporary
impairments
|
(262 | ) | (326 | ) | (362 | ) | (699 | ) | ||||||||
Fair value (losses) gains, net
|
(4,525 | ) | 525 | (5,870 | ) | (877 | ) | |||||||||
Debt extinguishment losses, net
|
(119 | ) | (214 | ) | (149 | ) | (497 | ) | ||||||||
Fee and other income
|
291 | 304 | 793 | 831 | ||||||||||||
Non-interest (loss) income
|
(4,542 | ) | 371 | (5,269 | ) | (971 | ) | |||||||||
Administrative expenses:
|
||||||||||||||||
Salaries and employee benefits
|
323 | 325 | 953 | 973 | ||||||||||||
Professional services
|
173 | 305 | 531 | 759 | ||||||||||||
Occupancy expenses
|
46 | 43 | 131 | 124 | ||||||||||||
Other administrative expenses
|
49 | 57 | 150 | 149 | ||||||||||||
Total administrative expenses
|
591 | 730 | 1,765 | 2,005 | ||||||||||||
(Benefit) provision for guaranty losses
|
(8 | ) | 78 | 694 | 111 | |||||||||||
Foreclosed property expense
|
733 | 787 | 743 | 1,255 | ||||||||||||
Other expenses
|
254 | 196 | 638 | 650 | ||||||||||||
Total expenses
|
1,570 | 1,791 | 3,840 | 4,021 | ||||||||||||
Loss before federal income taxes
|
(5,085 | ) | (1,340 | ) | (14,539 | ) | (14,150 | ) | ||||||||
Benefit for federal income taxes
|
| 9 | 91 | 67 | ||||||||||||
Net loss
|
(5,085 | ) | (1,331 | ) | (14,448 | ) | (14,083 | ) | ||||||||
Other comprehensive (loss) income:
|
||||||||||||||||
Changes in unrealized losses on
available-for-sale
securities, net of reclassification adjustments and taxes
|
(198 | ) | 901 | (20 | ) | 3,938 | ||||||||||
Other
|
1 | 1 | 6 | 6 | ||||||||||||
Total other comprehensive (loss) income
|
(197 | ) | 902 | (14 | ) | 3,944 | ||||||||||
Total comprehensive loss
|
(5,282 | ) | (429 | ) | (14,462 | ) | (10,139 | ) | ||||||||
Less: Comprehensive income attributable to the noncontrolling
interest
|
| (8 | ) | (1 | ) | (4 | ) | |||||||||
Total comprehensive loss attributable to Fannie Mae
|
$ | (5,282 | ) | $ | (437 | ) | $ | (14,463 | ) | $ | (10,143 | ) | ||||
Net loss
|
$ | (5,085 | ) | $ | (1,331 | ) | $ | (14,448 | ) | $ | (14,083 | ) | ||||
Less: Net income attributable to the noncontrolling interest
|
| (8 | ) | (1 | ) | (4 | ) | |||||||||
Net loss attributable to Fannie Mae
|
(5,085 | ) | (1,339 | ) | (14,449 | ) | (14,087 | ) | ||||||||
Preferred stock dividends
|
(2,494 | ) | (2,116 | ) | (6,992 | ) | (5,550 | ) | ||||||||
Net loss attributable to common stockholders
|
$ | (7,579 | ) | $ | (3,455 | ) | $ | (21,441 | ) | $ | (19,637 | ) | ||||
Loss per shareBasic and Diluted
|
$ | (1.32 | ) | $ | (0.61 | ) | $ | (3.74 | ) | $ | (3.45 | ) | ||||
Weighted-average common shares outstandingBasic and Diluted
|
5,760 | 5,695 | 5,730 | 5,694 |
See Notes to Condensed Consolidated Financial Statements
Third-Quarter 2011 Results |
12 |
FANNIE
MAE
(In conservatorship)
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions)
(In conservatorship)
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions)
For the Nine Months |
||||||||
Ended September 30, | ||||||||
2011 | 2010 | |||||||
Net cash used in operating activities
|
$ | (6,714 | ) | $ | (42,447 | ) | ||
Cash flows provided by investing activities:
|
||||||||
Purchases of trading securities held for investment
|
(2,483 | ) | (7,984 | ) | ||||
Proceeds from maturities and paydowns of trading securities held
for investment
|
1,672 | 1,997 | ||||||
Proceeds from sales of trading securities held for investment
|
837 | 21,488 | ||||||
Purchases of
available-for-sale
securities
|
(44 | ) | (262 | ) | ||||
Proceeds from maturities and paydowns of
available-for-sale
securities
|
9,995 | 12,927 | ||||||
Proceeds from sales of
available-for-sale
securities
|
2,590 | 7,096 | ||||||
Purchases of loans held for investment
|
(44,276 | ) | (52,048 | ) | ||||
Proceeds from repayments of loans held for investment of Fannie
Mae
|
18,467 | 14,749 | ||||||
Proceeds from repayments of loans held for investment of
consolidated trusts
|
364,500 | 378,662 | ||||||
Net change in restricted cash
|
7,717 | (11,111 | ) | |||||
Advances to lenders
|
(43,363 | ) | (44,951 | ) | ||||
Proceeds from disposition of acquired property and
preforeclosure sales
|
36,280 | 28,079 | ||||||
Net change in federal funds sold and securities purchased under
agreements to resell or similar agreements
|
(24,199 | ) | 33,219 | |||||
Other, net
|
137 | (476 | ) | |||||
Net cash provided by investing activities
|
327,830 | 381,385 | ||||||
Cash flows used in financing activities:
|
||||||||
Proceeds from issuance of debt of Fannie Mae
|
572,828 | 890,570 | ||||||
Payments to redeem debt of Fannie Mae
|
(609,399 | ) | (848,438 | ) | ||||
Proceeds from issuance of debt of consolidated trusts
|
157,280 | 191,665 | ||||||
Payments to redeem debt of consolidated trusts
|
(444,160 | ) | (587,963 | ) | ||||
Payments of cash dividends on senior preferred stock to Treasury
|
(6,992 | ) | (5,554 | ) | ||||
Proceeds from senior preferred stock purchase agreement with
Treasury
|
16,187 | 25,200 | ||||||
Net change in federal funds purchased and securities sold under
agreements to repurchase
|
| 185 | ||||||
Other, net
|
150 | (33 | ) | |||||
Net cash used in financing activities
|
(314,106 | ) | (334,368 | ) | ||||
Net increase in cash and cash equivalents
|
7,010 | 4,570 | ||||||
Cash and cash equivalents at beginning of period
|
17,297 | 6,812 | ||||||
Cash and cash equivalents at end of period
|
$ | 24,307 | $ | 11,382 | ||||
Cash paid during the period for interest
|
$ | 97,592 | $ | 107,537 |
See Notes to Condensed Consolidated Financial Statements
Third-Quarter 2011 Results |
13 |