Fannie Mae, Freddie Mac Get Profitable
Since late last decade, politicians, economists and Wall Street have shown concern for Fannie Mae, Freddie Mac and the FHA, and the agencies’ respective ability to remain solvent. High default rates led to large quarterly losses, a pattern which repeated from a period of close to 5 years.
Lately, those concerns have eased, especially with Fannie Mae and Freddie Mac posting unexpected quarterly profits this week.
- Fannie Mae : $5.1 billion second-quarter profit
- Freddie Mac : $3.0 billion second-quarter profit
Since late-2008, the two groups received $188 billion in taxpayer funds as a “bailout”. They’ve repaid a quarter of that, to date, and with a few more profitable quarters, the loan will be repaid in full.
Not surprisingly, the improving housing market is playing a role in the agencies’ return to profitability. As home prices rise, less money is set aside to cover future losses, tipping balance sheets toward the black.
Better risk management helps, too.
FHA Rebuilds Its Reserves, Too
Fannie Mae and Freddie Mac aren’t the only mortgage groups to rebuild their reserves. The FHA has been recapitalizing, too.
Since early-2009, the FHA has raised its mortgage insurance premiums on four separate occasions. New FHA homeowners in high-cost areas such as Orange County, California; and Loudoun County, Virginia now pay as much as 1.50% annually to the FHA’s capital reserves.
Bigger premiums plus fewer FHA defaults has helped the self-funded FHA maintain a positive capital ratio, and work toward its congressionally-mandated 2% reserve ratio. The $25 billion mortgage servicer settlement helped, too, contributed $1 billion to the FHA’s bottom line.
The FHA’s capital ratio is currently under 0.50%.
Mortgage Delinquencies Dropping
Another big factor in Fannie Mae, Freddie Mac and the FHA’s return to profitability is that more U.S. homeowners are staying current on their respective home loans. As compared to one year ago, just 7.58% of U.S. mortgages were considered delinquent.
A delinquent mortgage is one that’s more than 30 days past due, but not in foreclosure.
On a seasonally-adjusted annual basis, Q2 2012 represents an 86 basis point improvement. Fewer defaults mean fewer losses and, with fewer losses, comes more profit. This is good for the future of the big three lenders and may decrease the chance the mortgage fees rise for future home loan applicants.
Mortgage Rates Remain Low
For U.S. homeowners, the profitability of a government-backed lender may seem unimportant, and in a lot of respects, it is. What’s more important is the mortgage rates through said institutions and, right now, mortgage rates are great.
If you’re floating a mortgage or looking to lock one in, get a mortgage rate quote today.