WASHINGTON (6/17/14)--The Federal Housing Finance Agency (FHFA), in its annual report to Congress, provided the results of their annual examinations of government sponsored enterprises Fannie Mae and Freddie Mac. The FHFA has authority to annually examine the two enterprises under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992.
"A key component of FHFA's mission is to ensure that Fannie Mae and Freddie Mac are operating in a safe and sound manner so that they may continue to serve as a reliable source of liquidity and funding for housing finance and community investment," the report reads.
The FHFA praised Fannie Mae, aka the Federal National Mortgage Association, for progress during 2013 to improve its risk profile and strengthening oversight.
"That improvement resulted largely from the adoption in more conservative underwriting; improvements in macroeconomic factors, as reflected by significant home price appreciation in recent years; and management's focus on reducing the level of problem assets through loan modifications, short sales, real estate owned dispositions and liquidation of assets in the retained mortgage portfolio," the report reads.
The report goes on to note that while Fannie Mae had $84 billion in net income in 2013, a considerable increase over $17.2 billion in 2012, the elevated level of earnings is unsustainable, as it was driven by non-recurring sources of income, including a tax benefit and an increase in credit-related income.
"Notwithstanding the benefit that credit-related income provided to 2013 earning, high levels of problems assets are likely to continue to apply downward pressure on earnings," the report reads. "Further earnings will also be adversely impacted by the mandated decrease in the size of Fannie Mae's retained mortgage portfolio."
Freddie Mac, aka the Federal Home Loan Mortgage Corporation, also took positive steps in 2013, according to the FHFA, but continues to operate with a high level of problem mortgage loans and private-label securities acquired from before conservatorship.
"The chief source of concern is the year-end 2013 single family seriously delinquent mortgage rate, which is five times greater than the rate in 2006," the report reads. "Freddie Mac also has a high level of private-label mortgage-backed securities, residual risk from modifications and relief finances and ongoing contemporary credit risks."
The report also notes that those risks are mitigated somewhat by a higher quality in the single family book of business acquired since 2009, which is a growing proportion of the total book.
In addition, financial performance at Freddie Mac continued to improve, with net income of $48.7 billion in 2013, the highest recorded ever for Freddie Mac. But like Fannie Mae, Freddie Mac's current level of earnings is not sustainable due to non-recurring items and the planned reduction of the retained mortgage investment portfolio.
Use the resource link below for the full report.