UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 14, 2019
Federal National Mortgage Association
(Exact name of registrant as specified in its charter)
Federally chartered corporation | 0-50231 | 52-0883107 | 1100 15th Street, NW Washington, DC 20005 | (800) 2FANNIE (800-232-6643) | ||||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | (Address of principal executive offices, including zip code) | (Registrant’s telephone number, including area code) | ||||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§203.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
The information in this report, including information in the exhibits submitted with this report, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of Section 18, nor shall it be deemed incorporated by reference into any disclosure document relating to Fannie Mae (formally known as the Federal National Mortgage Association), except to the extent, if any, expressly incorporated by specific reference in that document.
Item 2.02 Results of Operations and Financial Condition.
On February 14, 2019, Fannie Mae filed its annual report on Form 10-K for the year ended December 31, 2018 and issued a news release reporting its financial results for the periods covered by the Form 10-K. Copies of the news release and a financial supplement are furnished as Exhibits 99.1 and 99.2, respectively, to this report and are incorporated herein by reference. Copies may also be found on Fannie Mae’s website, www.fanniemae.com, in the “About Us” section under “Investor Relations/Quarterly and Annual Results.” Information appearing on the company’s website is not incorporated into this report.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits. The following exhibits are being submitted with this report:
Exhibit Number | Description of Exhibit | |
99.1 | ||
99.2 | ||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
FEDERAL NATIONAL MORTGAGE ASSOCIATION | ||
By | /s/ Celeste M. Brown | |
Celeste M. Brown | ||
Executive Vice President and Chief Financial Officer | ||
Date: February 14, 2019
Contact: Pete Bakel Resource Center: 1-800-732-6643
202-752-2034 Exhibit 99.1 Date: February 14, 2019
Fannie Mae Reports Net Income of $16.0 Billion and
Comprehensive Income of $15.6 Billion for 2018
Fannie Mae Reports Net Income of $3.2 Billion and
Comprehensive Income of $3.2 Billion for Fourth Quarter 2018
Fourth Quarter and Full Year 2018 Results | |||
“We enjoyed a solid quarter based on a strong credit environment in a business that is driven by guarantee fee income rather than the retained mortgage investment portfolio, which continues to decline. “The core of our business is helping our customers provide America’s homeowners and renters with the best possible experience. Customers are at the core of everything we do. “Looking ahead, we will continue working with our customers and other partners on critical challenges, such as increasing the supply of affordable housing and driving digital transformation of the mortgage industry.” Hugh R. Frater, Chief Executive Officer | |||
Ÿ | Fannie Mae reported 2018 net income of $16.0 billion and fourth quarter 2018 net income of $3.2 billion, reflecting the strength of the company’s underlying business fundamentals. | ||
Ÿ | Fannie Mae expects to pay a $3.2 billion dividend to Treasury by March 31, 2019. Through the fourth quarter of 2018, the company has paid $175.8 billion in dividends to Treasury. | ||
Business Highlights | |||
Ÿ | Fannie Mae provided approximately $512 billion in liquidity to the mortgage market in 2018 and was the largest issuer of single-family mortgage-related securities in the secondary market for the full year and fourth quarter of 2018. More than 56% of the single-family mortgage loans the company acquired were affordable to families earning at or below 120% of the area median income, providing support for both affordable and workforce housing. The company’s estimated market share of new single-family mortgage-related securities issuances was 39% for full year 2018 and 37% for the fourth quarter of 2018. | ||
Ÿ | Fannie Mae completed its first Connecticut Avenue Securities® (CAS) offering under a Real Estate Mortgage Investment Conduit (CAS REMIC™) structure in November 2018. This new structure achieves insurance accounting treatment for CAS, which aligns the timing of the recognition of CAS benefits with credit losses. The structure also is designed to promote the continued growth of the market by expanding the potential investor base for these securities and limiting investor exposure to Fannie Mae counterparty risk, without disrupting the To-Be-Announced (TBA) MBS market. | ||
Ÿ | Fannie Mae has transferred a portion of the credit risk on single-family mortgages with an unpaid principal balance of more than $1.5 trillion since 2013, measured at the time of the transactions, including approximately $354.0 billion in 2018. As of December 31, 2018, $1.1 trillion in single-family mortgages or approximately 39% of the loans in the company’s single-family conventional guaranty book of business, measured by unpaid principal balance, were covered by a credit risk transfer transaction. | ||
Ÿ | Fannie Mae provided $65.4 billion in multifamily financing in 2018, which supported 777,000 units of multifamily housing. More than 90% of the multifamily units the company financed were affordable to families earning at or below 120% of the area median income, providing support for both affordable and workforce housing. Fannie Mae was one of the largest issuers of Green Bonds in the world in 2018, issuing more than $20 billion in Green MBS during the year and increasing the multifamily green financing book of business to more than $50 billion. | ||
Ÿ | Fannie Mae continued to share credit risk with lenders on nearly 100% of the company’s new multifamily business volume through its Delegated Underwriting and Servicing (DUS®) program. To complement the company’s lender loss sharing program, the company completed its third and fourth multifamily Credit Insurance Risk Transfer™ (CIRT™) transactions in 2018, which covered multifamily loans with an unpaid principal balance of approximately $22.0 billion. | ||
Fourth Quarter and Full Year 2018 Results | 1 | |
WASHINGTON, DC — Fannie Mae (FNMA/OTC) reported annual net income of $16.0 billion and annual comprehensive income of $15.6 billion. For the fourth quarter of 2018, Fannie Mae reported net income and comprehensive income of $3.2 billion. The company reported a net worth of $6.2 billion as of December 31, 2018. As a result, Fannie Mae expects to pay a $3.2 billion dividend to Treasury by March 31, 2019.
SUMMARY OF FANNIE MAE’S FINANCIAL PERFORMANCE
Consolidated Results
(Dollars in billions)
Fannie Mae’s pre-tax income was $20.1 billion in 2018, compared with $18.4 billion in 2017. The increase in the company’s pre-tax income in 2018 compared with 2017 was driven primarily by a shift to fair value gains from fair value losses and an increase in credit-related income, partially offset by a decrease in fee and other income.
Fannie Mae’s net income of $16.0 billion for 2018 compares with net income of $2.5 billion for 2017. The increase in net income for 2018 compared with 2017 was driven primarily by the absence of a $9.9 billion one-time charge for federal income taxes recorded in 2017 and the lower corporate tax rate in effect as a result of the Tax Cuts and Jobs Act of 2017.
Fourth Quarter and Full Year 2018 Results | 2 | |
Summary of Financial Results |
(Dollars in millions) | 4Q18 | 3Q18 | Variance | 2018 | 2017 | Variance | ||||||||||||||||||
Net interest income | $ | 4,973 | $ | 5,369 | $ | (396 | ) | $ | 20,951 | $ | 20,733 | $ | 218 | |||||||||||
Fee and other income | 149 | 271 | (122 | ) | 979 | 2,227 | (1,248 | ) | ||||||||||||||||
Net revenues | 5,122 | 5,640 | (518 | ) | 21,930 | 22,960 | (1,030 | ) | ||||||||||||||||
Investment gains, net | 259 | 166 | 93 | 952 | 1,522 | (570 | ) | |||||||||||||||||
Fair value gains (losses), net | (539 | ) | 386 | (925 | ) | 1,121 | (1,211 | ) | 2,332 | |||||||||||||||
Administrative expenses | (814 | ) | (740 | ) | (74 | ) | (3,059 | ) | (2,737 | ) | (322 | ) | ||||||||||||
Credit-related income | ||||||||||||||||||||||||
Benefit for credit losses | 1,080 | 716 | 364 | 3,309 | 2,041 | 1,268 | ||||||||||||||||||
Foreclosed property expense | (157 | ) | (159 | ) | 2 | (617 | ) | (521 | ) | (96 | ) | |||||||||||||
Total credit-related income | 923 | 557 | 366 | 2,692 | 1,520 | 1,172 | ||||||||||||||||||
Temporary Payroll Tax Cut Continuation Act of 2011 (“TCCA”) fees | (586 | ) | (576 | ) | (10 | ) | (2,284 | ) | (2,096 | ) | (188 | ) | ||||||||||||
Other expenses, net | (307 | ) | (377 | ) | 70 | (1,253 | ) | (1,511 | ) | 258 | ||||||||||||||
Income before federal income taxes | 4,058 | 5,056 | (998 | ) | 20,099 | 18,447 | 1,652 | |||||||||||||||||
Provision for federal income taxes | (828 | ) | (1,045 | ) | 217 | (4,140 | ) | (15,984 | ) | 11,844 | ||||||||||||||
Net income | $ | 3,230 | $ | 4,011 | $ | (781 | ) | $ | 15,959 | $ | 2,463 | $ | 13,496 | |||||||||||
Total comprehensive income | $ | 3,239 | $ | 3,975 | $ | (736 | ) | $ | 15,611 | $ | 2,257 | $ | 13,354 | |||||||||||
Net revenues, which consist of net interest income and fee and other income, were $5.1 billion for the fourth quarter of 2018, compared with $5.6 billion for the third quarter of 2018. For the year, net revenues were $21.9 billion, compared with $23.0 billion in 2017.
Net interest income was $5.0 billion for the fourth quarter of 2018, compared with $5.4 billion for the third quarter of 2018. For 2018, net interest income was $21.0 billion, compared with $20.7 billion for 2017. The decrease in net interest income for the fourth quarter was due primarily to lower amortization income driven by lower mortgage prepayment activity, partially offset by higher base guaranty fee income. The increase in net interest income for the year was due primarily to an increase in the size of the company’s guaranty book of business and loans with higher base guaranty fees compared with 2017, partially offset by lower amortization income.
Fannie Mae’s net interest income is derived from two primary sources: guaranty fees the company receives for managing the credit risk on loans underlying Fannie Mae MBS held by third parties; and the difference between interest income earned on the assets in the company’s retained mortgage portfolio and its other investments portfolio and the interest expense associated with the debt that funds those assets. More than 75 percent of Fannie
Fourth Quarter and Full Year 2018 Results | 3 | |
Mae’s 2018 net interest income was derived from the loans underlying Fannie Mae MBS in consolidated trusts, which primarily generate income through guaranty fees.
Net fair value losses were $539 million in the fourth quarter of 2018, compared with $386 million in gains in the third quarter of 2018. Net fair value losses in the fourth quarter of 2018 were due primarily to decreases in interest rates at the end of the fourth quarter of 2018. For the year, net fair value gains were $1.1 billion, compared with $1.2 billion in losses in 2017. Net fair value gains for 2018 were due primarily to increasing interest rates in the first three quarters of the year and widening spreads between CAS yields and LIBOR during the year resulting in fair value gains. The estimated fair value of the company’s derivatives, trading securities, and other financial instruments carried at fair value may fluctuate substantially from period to period because of changes in interest rates, the yield curve, mortgage and credit spreads, implied volatility, and activity related to these financial instruments.
Credit-related income (expense) consists of a benefit or provision for credit losses and foreclosed property expense. Credit-related income was $923 million in the fourth quarter of 2018, compared with $557 million in the third quarter of 2018. The increase in credit-related income in the fourth quarter was driven primarily by lower projected future interest rates and higher forecasted home prices. Credit-related income was $2.7 billion in 2018, compared with $1.5 billion in 2017. The increase in credit-related income for the year was driven primarily by the redesignation of certain reperforming and nonperforming mortgage loans from held-for-investment to held-for-sale and higher actual home prices.
Fourth Quarter and Full Year 2018 Results | 4 | |
PROVIDING LIQUIDITY AND SUPPORT TO THE MARKET
Fannie Mae provided approximately $512 billion in liquidity to the mortgage market in 2018, including approximately $122.5 billion in liquidity in the fourth quarter of 2018. Through its purchases and guarantees of mortgage loans in 2018, Fannie Mae acquired approximately 1.9 million mortgage loans.
Fannie Mae also financed approximately 777,000 units of multifamily housing in 2018, including approximately 229,000 in the fourth quarter of 2018.
Fourth Quarter and Full Year 2018 Results | 5 | |
SUMMARY OF FOURTH QUARTER AND FULL YEAR 2018 BUSINESS SEGMENT RESULTS
Fannie Mae’s two reportable business segments—Single-Family and Multifamily—engage in complementary business activities to provide liquidity, access to credit, and affordability in all U.S. housing markets at all times, while effectively managing and reducing risk to Fannie Mae’s business, taxpayers, and the housing finance system. Fannie Mae is pursuing four strategic objectives: advancing a sustainable and reliable business model with low risk to the housing finance system and taxpayers; providing great service to its customers and partners, enabling them to serve the needs of American households more effectively; supporting and sustainably increasing access to credit and affordable housing; and building a simple, efficient, innovative, and continuously improving company.
Business Segments |
Single-Family Business
(Dollars in millions) | 4Q18 | 3Q18 | Variance | 2018 | 2017 | Variance | ||||||||||||||||||
Single-Family Segment: | ||||||||||||||||||||||||
Net interest income | $ | 4,208 | $ | 4,670 | $ | (462 | ) | $ | 18,162 | $ | 18,212 | $ | (50 | ) | ||||||||||
Fee and other income | 144 | 79 | 65 | 450 | 1,378 | (928 | ) | |||||||||||||||||
Net revenues | 4,352 | 4,749 | (397 | ) | 18,612 | 19,590 | (978 | ) | ||||||||||||||||
Investment gains, net | 210 | 146 | 64 | 850 | 1,352 | (502 | ) | |||||||||||||||||
Fair value gains (losses), net | (519 | ) | 417 | (936 | ) | 1,210 | (1,188 | ) | 2,398 | |||||||||||||||
Administrative expenses | (703 | ) | (636 | ) | (67 | ) | (2,631 | ) | (2,391 | ) | (240 | ) | ||||||||||||
Credit-related income | 934 | 582 | 352 | 2,709 | 1,550 | 1,159 | ||||||||||||||||||
TCCA fees | (586 | ) | (576 | ) | (10 | ) | (2,284 | ) | (2,096 | ) | (188 | ) | ||||||||||||
Other expenses, net | (328 | ) | (282 | ) | (46 | ) | (1,012 | ) | (1,004 | ) | (8 | ) | ||||||||||||
Income before federal income taxes | 3,360 | 4,400 | (1,040 | ) | 17,454 | 15,813 | 1,641 | |||||||||||||||||
Provision for federal income taxes | (710 | ) | (938 | ) | 228 | (3,708 | ) | (14,301 | ) | 10,593 | ||||||||||||||
Net income | $ | 2,650 | $ | 3,462 | $ | (812 | ) | $ | 13,746 | $ | 1,512 | $ | 12,234 | |||||||||||
Financial Results
• | Single-Family net income was $2.7 billion in the fourth quarter of 2018, compared with $3.5 billion in the third quarter of 2018. The decrease in net income in the fourth quarter was driven primarily by: |
◦ | fair value losses in the fourth quarter compared to fair value gains in the third quarter, driven by a decrease in interest rates in the fourth quarter, and |
◦ | lower net interest income driven primarily by lower amortization income in the fourth quarter, resulting from decreased mortgage prepayment rates. |
▪ | For the year, single-family net income was $13.7 billion, compared with $1.5 billion in 2017. The increase in single-family net income in 2018 was driven primarily by the absence of a one-time charge for federal income taxes recorded in 2017 that resulted from the enactment of the Tax Cuts and Jobs Act of 2017. |
Business Highlights
• | The single-family guaranty book of business continued to grow in the fourth quarter of 2018, while the average charged guaranty fee, net of Temporary Payroll Tax Cut Continuation Act of 2011 (TCCA) fees, on the single-family guaranty book in the fourth quarter increased slightly from the prior quarter to 43.0 basis points. |
• | Fannie Mae’s single-family business provided $446.6 billion in liquidity to the mortgage market in 2018. Through its purchases and guarantees of mortgage loans in 2018, the company acquired approximately 1.9 million mortgage loans that comprised 1.2 million home purchases and 713,000 refinancings. |
Fourth Quarter and Full Year 2018 Results | 6 | |
• | The single-family serious delinquency rate decreased from 0.82% as of September 30, 2018 to 0.76% as of December 31, 2018, driven by improved loan payment performance and nonperforming loan sales. |
Multifamily Business
(Dollars in millions) | 4Q18 | 3Q18 | Variance | 2018 | 2017 | Variance | ||||||||||||||||||
Multifamily Segment: | ||||||||||||||||||||||||
Net interest income | $ | 765 | $ | 699 | $ | 66 | $ | 2,789 | $ | 2,521 | $ | 268 | ||||||||||||
Fee and other income | 5 | 192 | (187 | ) | 529 | 849 | (320 | ) | ||||||||||||||||
Net revenues | 770 | 891 | (121 | ) | 3,318 | 3,370 | (52 | ) | ||||||||||||||||
Fair value losses, net | (20 | ) | (31 | ) | 11 | (89 | ) | (23 | ) | (66 | ) | |||||||||||||
Administrative expenses | (111 | ) | (104 | ) | (7 | ) | (428 | ) | (346 | ) | (82 | ) | ||||||||||||
Credit-related income (expense) | (11 | ) | (25 | ) | 14 | (17 | ) | (30 | ) | 13 | ||||||||||||||
Other income (expense) | 70 | (75 | ) | 145 | (139 | ) | (337 | ) | 198 | |||||||||||||||
Income before federal income taxes | 698 | 656 | 42 | 2,645 | 2,634 | 11 | ||||||||||||||||||
Provision for federal income taxes | (118 | ) | (107 | ) | (11 | ) | (432 | ) | (1,683 | ) | 1,251 | |||||||||||||
Net income | $ | 580 | $ | 549 | $ | 31 | $ | 2,213 | $ | 951 | $ | 1,262 | ||||||||||||
Financial Results
• | Multifamily net income was $580 million in the fourth quarter of 2018, compared with $549 million in the third quarter of 2018. The increase in net income for the fourth quarter of 2018 was driven partially by an increase in guaranty fee revenue as the multifamily book grew during the quarter. |
• | Multifamily net income was $2.2 billion in 2018, compared with $951 million in 2017. The increase in multifamily net income in 2018 was driven primarily by the absence of a one-time charge for federal income taxes recorded in 2017 that resulted from the enactment of the Tax Cuts and Jobs Act of 2017. The increase also was driven by an increase in guaranty fee revenue as the multifamily book grew during the year. This was partially offset by a decrease in fee and other income driven by lower yield maintenance revenue as a result of rising interest rates. |
Business Highlights
• | The multifamily guaranty book of business continued to grow in the fourth quarter of 2018, reaching over $300 billion, while the average charged guaranty fee on the multifamily book decreased slightly to 75.4 basis points as of December 31, 2018. |
• | New multifamily business volume was $21.4 billion in the fourth quarter of 2018, an increase from $18.2 billion in the third quarter. Multifamily new business volume totaled $65.4 billion for 2018, of which approximately 46% counted toward the Federal Housing Finance Agency’s (FHFA) 2018 multifamily volume cap. |
• | Fannie Mae’s multifamily financing in 2018 supported 777,000 units of multifamily housing. More than 90% of the multifamily units the company financed were affordable to families earning at or below 120% of the area median income, providing support for both affordable and workforce housing. |
• | The multifamily serious delinquency rate decreased from 0.07% as of September 30, 2018 to 0.06% as of December 31, 2018, driven primarily by a decrease in hurricane-impacted loans with interim forbearances. |
Fourth Quarter and Full Year 2018 Results | 7 | |
CREDIT RISK TRANSFER TRANSACTIONS
Fannie Mae continues to innovate and improve its credit risk transfer programs, expanding the types of loans covered and promoting the continued growth of the credit risk transfer market. For single-family mortgages, Fannie Mae has relied principally on two types of transactions to transfer credit risk: its Connecticut Avenue Securities® (CAS) transactions and its Credit Insurance Risk Transfer (CIRT) transactions. In these transactions, the company transfers to investors a portion of the credit risk associated with losses on a reference pool of mortgage loans and in exchange pays investors a premium that effectively reduces the guaranty fee income the company retains on the loans.
In November 2018, Fannie Mae completed its first CAS offering under a new Real Estate Mortgage Investment Conduit (REMIC) structure. This new structure achieves insurance accounting treatment for CAS, which aligns the timing of the recognition of CAS benefits with credit losses. The structure also is designed to promote the continued growth of the market by expanding the potential investor base for these securities and limiting investor exposure to Fannie Mae counterparty risk, without disrupting the To-Be-Announced (TBA) MBS market. For a description of the CAS REMIC structure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Single-Family Business—Single-Family Credit Risk Transfer Transactions” in the company’s 2018 Form 10-K.
Fannie Mae continued to transfer a portion of the credit risk on multifamily mortgages, and nearly 100% of the company’s new multifamily business volume had lender risk-sharing primarily through the company’s Delegated Underwriting and Servicing (DUS®) model in 2018. To complement the company’s lender loss sharing program through DUS, Fannie Mae also transferred a portion of the mortgage credit risk on multifamily loans in its multifamily guaranty book of business to insurers or reinsurers through multifamily CIRT transactions. In 2018, the company completed its third and fourth multifamily CIRT transactions.
COMMON SECURITIZATION PLATFORM AND SINGLE SECURITY INITIATIVE
In pursuit of the strategic goals identified by Fannie Mae’s conservator, for the past several years the company has been working with FHFA, Freddie Mac, and Common Securitization Solutions (CSS) on the development of a common securitization platform that Fannie Mae expects to use to perform certain aspects of the securitization process beginning in 2019. The company has also been working toward developing and implementing a single-family uniform mortgage-backed security (UMBS) for Fannie Mae and Freddie Mac.
The intended purpose of the common securitization platform, which is operated by CSS, is to replace certain elements of Fannie Mae’s and Freddie Mac’s proprietary systems for securitizing mortgages and performing associated back office and administrative functions. In addition, FHFA specified that the design of the common securitization platform should allow for the integration of additional market participants in the future.
The UMBS is intended to maximize liquidity for both Fannie Mae and Freddie Mac mortgage-backed securities in the TBA market. In March 2018, FHFA announced that Fannie Mae and Freddie Mac will start issuing these UMBS in June 2019.
Once UMBS are issued, lender customers, securities dealers, and other investors will be able to swap UMBS issued by either Fannie Mae or Freddie Mac for a new form of structured security issued and guaranteed by Fannie Mae that combines collateral and provides Fannie Mae’s guaranty of principal and interest on the underlying UMBS, even if that UMBS was not issued by Fannie Mae. The company expects that once it begins issuing UMBS, the vast majority of its single-family MBS will be issued as UMBS.
Historically, Fannie Mae MBS had a trading advantage over comparable Freddie Mac PCs. One of FHFA’s stated objectives for the Single Security Initiative is to reduce the costs to Freddie Mac and taxpayers that result from differences in liquidity of Fannie Mae MBS and Freddie Mac PCs. In the last couple of years, as the implementation date of the Single Security Initiative has drawn closer, Fannie Mae MBS and comparable Freddie Mac PCs have been trading at or near parity. See “Risk Factors” in the company’s 2018 Form 10-K for a discussion of the risks to our business associated with the Single Security Initiative.
Fourth Quarter and Full Year 2018 Results | 8 | |
FINANCIAL PERFORMANCE OUTLOOK
Fannie Mae expects to remain profitable on an annual basis for the foreseeable future; however, certain factors could result in significant volatility in the company’s financial results from quarter to quarter or year to year. Fannie Mae expects quarterly volatility in its financial results due to a number of factors, particularly changes in market conditions that result in fluctuations in the estimated fair value of derivatives and other financial instruments that it marks to market through its earnings. Other factors that may result in volatility in the company’s quarterly financial results include developments that affect its loss reserves, such as redesignations of loans held for investment to held for sale, changes in interest rates, home prices or accounting standards, or events such as natural disasters, and other factors, as the company discusses in “Risk Factors” and “MD&A—Consolidated Results of Operations—Credit-Related Income (Expense)” in the company’s 2018 Form 10-K.
Additional factors may affect Fannie Mae’s profitability in the future. While the redesignation of reperforming and nonperforming loans from held-for-investment to held-for-sale has been a significant driver of credit-related income in recent periods, the company may see a reduced impact from this activity in the future to the extent the population of loans it is considering for redesignation declines. Further, Fannie Mae’s implementation of the Current Expected Credit Loss (CECL) standard on January 1, 2020 may introduce volatility in the company’s results thereafter as credit-related income or expense will include expected lifetime losses and thus become more sensitive to fluctuations in the factors detailed above. In addition, a rising interest rate environment and possible decreases in Fannie Mae’s retained mortgage portfolio could result in a decrease in the company’s net interest income in 2019.
The potential for significant volatility in the company’s financial results could result in a net loss in a future quarter. Fannie Mae is permitted to retain up to $3.0 billion in capital reserves as a buffer in the event of a net loss in a future quarter. However, any net loss the company experiences in the future could be greater than the amount of its capital reserves, resulting in a net worth deficit for that quarter. If the company experiences a net worth deficit in a future quarter, it will be required to draw additional funds from Treasury under the senior preferred stock purchase agreement to avoid being placed into receivership. See “Risk Factors” in the company’s 2018 Form 10-K for a discussion of the risks associated with the limitations on the company’s ability to rebuild its capital reserves, including factors that could result in a net loss or net worth deficit in a future quarter.
ABOUT FANNIE MAE’S CONSERVATORSHIP AND AGREEMENTS WITH TREASURY
Fannie Mae has operated under the conservatorship of FHFA since September 6, 2008. Treasury has made a commitment under a senior preferred stock purchase agreement to provide funding to Fannie Mae under certain circumstances if the company has a net worth deficit. Pursuant to this agreement and the senior preferred stock the company issued to Treasury in 2008, the Director of FHFA has directed Fannie Mae to pay dividends to Treasury on a quarterly basis since entering into conservatorship in 2008 for every dividend period for which dividends were payable.
Fourth Quarter and Full Year 2018 Results | 9 | |
The chart below shows the funds Fannie Mae has drawn from Treasury pursuant to the senior preferred stock purchase agreement, as well as the dividend payments the company has made to Treasury on the senior preferred stock, since entering into conservatorship.
Treasury Draws and Dividend Payments: 2008 - 2018
(Dollars in billions)
(1) | Under the terms of the senior preferred stock purchase agreement, dividend payments we make to Treasury do not offset our prior draws of funds from Treasury. Amounts may not sum due to rounding. |
(2) | Treasury draws are shown in the period for which requested, not when the funds were received by us. Draw requests have been funded in the quarter following a net worth deficit. |
Fannie Mae expects to pay Treasury a first quarter 2019 dividend of $3.2 billion by March 31, 2019. The senior preferred stock provides for dividends each quarter in the amount, if any, by which the company’s net worth as of the end of the prior quarter exceeds a $3.0 billion capital reserve amount.
As of the date of this filing, the maximum amount of remaining funding under the agreement is $113.9 billion. If the company were to draw additional funds from Treasury under the agreement with respect to a future period, the amount of remaining funding under the agreement would be reduced by the amount of our draw. Dividend payments the company makes to Treasury do not restore or increase the amount of funding available to it under the agreement.
For a description of the terms of the senior preferred stock purchase agreement and the senior preferred stock, see “Conservatorship, Treasury Agreements and Housing Finance Reform—Treasury Agreements” in the company’s 2018 Form 10-K.
Although Treasury owns Fannie Mae’s senior preferred stock and a warrant to purchase 79.9% percent of the company’s common stock, and has made a commitment under a senior preferred stock purchase agreement to provide the company with funds to maintain a positive net worth under specified conditions, the U.S. government does not guarantee the company’s securities or other obligations.
Fannie Mae’s financial statements for the full year of 2018 are available in the accompanying Annex; however, investors and interested parties should read the company’s 2018 Form 10-K, which was filed today with the Securities and Exchange Commission and is available on Fannie Mae’s website, www.fanniemae.com. The company provides further discussion of its financial results and condition, credit performance, and other matters in its 2018 Form 10-K. Additional information about the company’s credit performance, the characteristics of its guaranty book of business, its foreclosure-prevention efforts, and other measures is contained in the “Fourth Quarter and Full Year 2018 Financial Supplement” at www.fanniemae.com.
Fourth Quarter and Full Year 2018 Results | 10 | |
# # #
In this release, the company has presented a number of estimates, forecasts, expectations, and other forward-looking statements, including statements regarding: the company’s future profitability, financial condition and results of operations and the factors that will affect them; the company’s dividend payments to Treasury; the company’s retained mortgage portfolio; the company’s expectations regarding the implementation and its use of the common securitization platform and the implementation and impact of the Single Security Initiative, as well as the company’s issuances of UMBS; the company’s plans relating to and the effects of the company’s credit risk transfer transactions; other factors that could affect or mitigate the company’s credit risk exposure; payments to HUD and Treasury funds under the GSE Act; the consequences of conservatorship, any end or change to conservatorship, and possible receivership; the impact of accounting guidance and accounting changes on the company’s business or financial results, including the impact of impairment accounting guidance; the impact of legislation and regulation on the company’s business or financial results; mortgage market and economic conditions (including home price appreciation rates) and the impact of such conditions on its business or financial results; the company’s serious delinquency rate and the factors that will affect its serious delinquency rate; the performance of the loans in the company’s book of business and factors that will affect such performance; the company’s loan acquisitions and the credit risk profile of such acquisitions; factors that will affect our liquidity and ability to meet our debt obligations and factors relating to the company’s liquidity contingency plans; and the company’s response to legal and regulatory proceedings and their impact on our business or financial condition. These estimates, forecasts, expectations, and statements are forward-looking statements based on the company’s current assumptions regarding numerous factors. Actual results, and future projections, could be materially different from what is set forth in the forward-looking statements as a result of: home price changes; interest rate changes; unemployment rates; the company’s future serious delinquency rates; the company’s future guaranty fee pricing and the impact of that pricing on the company’s guaranty fee revenues and competitive environment; government policy; credit availability; changes in borrower behavior; the volume of loans it modifies; the effectiveness of its loss mitigation strategies; significant changes in modification and foreclosure activity; the volume and pace of future nonperforming and reperforming loan sales and their impact on the company’s results and serious delinquency rates; the effectiveness of its management of its real estate owned inventory and pursuit of contractual remedies; changes in the fair value of its assets and liabilities; the stability and adequacy of the systems and infrastructure that impact our operations, including the company’s and those of its counterparties and other third parties on which the business relies; future legislative or regulatory requirements or changes that have a significant impact on the company’s business, such as the enactment of housing finance reform legislation; actions by FHFA, Treasury, the Department of Housing and Urban Development or other regulators that affect the company’s business; the size, composition and quality of the company’s guaranty book of business and retained mortgage portfolio; the competitive landscape in which the company operates, including the impact of legislative or other developments on levels of competition in its industry and other factors affecting its market share; the life of the loans in the company’s guaranty book of business; future updates to the company’s models relating to loss reserves, including the assumptions used by these models; changes in generally accepted accounting principles; changes to the company’s accounting policies; whether the company’s counterparties meet their obligations in full; effects from activities the company takes to support the mortgage market and help borrowers; the company’s future objectives and activities in support of those objectives, including actions the company may take to reach additional underserved creditworthy borrowers; actions the company may be required to take by FHFA, in its role as the company’s conservator or as its regulator, such as changes in the type of business the company does or the implementation of the Single Security Initiative; limitations on the company’s business imposed by FHFA, in its role as the company’s conservator or as its regulator; the conservatorship, including any changes to or termination (by receivership or otherwise) of the conservatorship and its effect on the company’s business; the investment by Treasury and its effect on the company’s business; the uncertainty of the company’s future; challenges the company faces in retaining and hiring qualified executives and other employees; the deteriorated credit performance of many loans in the company’s guaranty book of business; a decrease in the company’s credit ratings; defaults by one or more institutional counterparties; resolution or settlement agreements the company may enter into with its counterparties; operational control weaknesses; changes in the fiscal and monetary policies of the Federal Reserve; changes in the structure and regulation of the financial services industry; the company’s ability to access the debt markets; disruptions in the housing, credit, and stock markets; government investigations and litigation; the company’s reliance on and the performance of the company’s servicers; conditions in the foreclosure environment; domestic and global political risks and uncertainties; natural disasters, environmental disasters, terrorist attacks, pandemics, or other major disruptive events; cyber attacks or other information security breaches or threats; and many other factors, including those discussed in the “Risk Factors” and “Forward-Looking Statements” sections of and elsewhere in the company’s annual report on Form 10-K for the year ended December 31, 2018, and elsewhere in this release.
Fannie Mae provides website addresses in its news releases solely for readers’ information. Other content or information appearing on these websites is not part of this release.
Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit fanniemae.com and follow us on twitter.com/fanniemae.
Fourth Quarter and Full Year 2018 Results | 11 | |
ANNEX
FANNIE MAE
(In conservatorship)
Consolidated Balance Sheets
(Dollars in millions)
As of December 31, | |||||||||||
2018 | 2017 | ||||||||||
ASSETS | |||||||||||
Cash and cash equivalents | $ | 25,557 | $ | 32,110 | |||||||
Restricted cash (includes $17,849 and $22,132, respectively, related to consolidated trusts) | 23,866 | 28,150 | |||||||||
Federal funds sold and securities purchased under agreements to resell or similar arrangements | 32,938 | 19,470 | |||||||||
Investments in securities: | |||||||||||
Trading, at fair value (includes $3,061 and $747, respectively, pledged as collateral) | 41,867 | 34,679 | |||||||||
Available-for-sale, at fair value | 3,429 | 4,843 | |||||||||
Total investments in securities | 45,296 | 39,522 | |||||||||
Mortgage loans: | |||||||||||
Loans held for sale, at lower of cost or fair value | 7,701 | 4,988 | |||||||||
Loans held for investment, at amortized cost: | |||||||||||
Of Fannie Mae | 113,039 | 162,809 | |||||||||
Of consolidated trusts | 3,142,858 | 3,029,812 | |||||||||
Total loans held for investment (includes $8,922 and $10,596, respectively, at fair value) | 3,255,897 | 3,192,621 | |||||||||
Allowance for loan losses | (14,203 | ) | (19,084 | ) | |||||||
Total loans held for investment, net of allowance | 3,241,694 | 3,173,537 | |||||||||
Total mortgage loans | 3,249,395 | 3,178,525 | |||||||||
Deferred tax assets, net | 13,188 | 17,350 | |||||||||
Accrued interest receivable, net (includes $7,928 and $7,560, respectively, related to consolidated trusts) | 8,490 | 8,133 | |||||||||
Acquired property, net | 2,584 | 3,220 | |||||||||
Other assets | 17,004 | 19,049 | |||||||||
Total assets | $ | 3,418,318 | $ | 3,345,529 | |||||||
LIABILITIES AND EQUITY (DEFICIT) | |||||||||||
Liabilities: | |||||||||||
Accrued interest payable (includes $9,133 and $8,598, respectively, related to consolidated trusts) | $ | 10,211 | $ | 9,682 | |||||||
Debt: | |||||||||||
Of Fannie Mae (includes $6,826 and $8,186, respectively, at fair value) | 232,074 | 276,752 | |||||||||
Of consolidated trusts (includes $23,753 and $30,493, respectively, at fair value) | 3,159,846 | 3,053,302 | |||||||||
Other liabilities (includes $356 and $492, respectively, related to consolidated trusts) | 9,947 | 9,479 | |||||||||
Total liabilities | 3,412,078 | 3,349,215 | |||||||||
Commitments and contingencies (Note 16) | — | — | |||||||||
Fannie Mae stockholders’ equity (deficit): | |||||||||||
Senior preferred stock, 1,000,000 shares issued and outstanding | 120,836 | 117,149 | |||||||||
Preferred stock, 700,000,000 shares are authorized—555,374,922 shares issued and outstanding | 19,130 | 19,130 | |||||||||
Common stock, no par value, no maximum authorization—1,308,762,703 shares issued and 1,158,087,567 shares outstanding | 687 | 687 | |||||||||
Accumulated deficit | (127,335 | ) | (133,805 | ) | |||||||
Accumulated other comprehensive income | 322 | 553 | |||||||||
Treasury stock, at cost, 150,675,136 shares | (7,400 | ) | (7,400 | ) | |||||||
Total stockholders’ equity (deficit) (See Note 1: Senior Preferred Stock Purchase Agreement, Senior Preferred Stock and Warrant for information on our dividend obligation to Treasury) | 6,240 | (3,686 | ) | ||||||||
Total liabilities and equity (deficit) | $ | 3,418,318 | $ | 3,345,529 | |||||||
See Notes to Consolidated Financial Statements in 2018 Form 10-K
Fourth Quarter and Full Year 2018 Results | 12 | |
FANNIE MAE
(In conservatorship)
Consolidated Statements of Operations and Comprehensive Income
(Dollars in millions, except per share amounts)
For the Year Ended December 31, | ||||||||||||||||
2018 | 2017 | 2016 | ||||||||||||||
Interest income: | ||||||||||||||||
Trading securities | $ | 1,336 | $ | 706 | $ | 516 | ||||||||||
Available-for-sale securities | 230 | 335 | 620 | |||||||||||||
Mortgage loans (includes $107,964, $100,593 and $95,266, respectively, related to consolidated trusts) | 114,605 | 108,319 | 104,642 | |||||||||||||
Federal funds sold and securities purchased under agreements to resell or similar arrangements | 742 | 373 | 141 | |||||||||||||
Other | 136 | 123 | 102 | |||||||||||||
Total interest income | 117,049 | 109,856 | 106,021 | |||||||||||||
Interest expense: | ||||||||||||||||
Short-term debt | (468 | ) | (250 | ) | (206 | ) | ||||||||||
Long-term debt (includes $89,682, $82,580 and $77,575, respectively, related to consolidated trusts) | (95,630 | ) | (88,873 | ) | (84,520 | ) | ||||||||||
Total interest expense | (96,098 | ) | (89,123 | ) | (84,726 | ) | ||||||||||
Net interest income | 20,951 | 20,733 | 21,295 | |||||||||||||
Benefit for credit losses | 3,309 | 2,041 | 2,155 | |||||||||||||
Net interest income after benefit for credit losses | 24,260 | 22,774 | 23,450 | |||||||||||||
Investment gains, net | 952 | 1,522 | 1,256 | |||||||||||||
Fair value gains (losses), net | 1,121 | (1,211 | ) | (1,081 | ) | |||||||||||
Fee and other income | 979 | 2,227 | 966 | |||||||||||||
Non-interest income | 3,052 | 2,538 | 1,141 | |||||||||||||
Administrative expenses: | ||||||||||||||||
Salaries and employee benefits | (1,451 | ) | (1,328 | ) | (1,336 | ) | ||||||||||
Professional services | (1,032 | ) | (933 | ) | (955 | ) | ||||||||||
Other administrative expenses | (576 | ) | (476 | ) | (450 | ) | ||||||||||
Total administrative expenses | (3,059 | ) | (2,737 | ) | (2,741 | ) | ||||||||||
Foreclosed property expense | (617 | ) | (521 | ) | (644 | ) | ||||||||||
Temporary Payroll Cut Continuation Act of 2011 (“TCCA”) fees | (2,284 | ) | (2,096 | ) | (1,845 | ) | ||||||||||
Other expenses, net | (1,253 | ) | (1,511 | ) | (1,028 | ) | ||||||||||
Total expenses | (7,213 | ) | (6,865 | ) | (6,258 | ) | ||||||||||
Income before federal income taxes | 20,099 | 18,447 | 18,333 | |||||||||||||
Provision for federal income taxes | (4,140 | ) | (15,984 | ) | (6,020 | ) | ||||||||||
Net income | 15,959 | 2,463 | 12,313 | |||||||||||||
Other comprehensive loss: | ||||||||||||||||
Changes in unrealized gains on available-for-sale securities, net of reclassification adjustments and taxes | (344 | ) | (206 | ) | (642 | ) | ||||||||||
Other, net of taxes | (4 | ) | — | (6 | ) | |||||||||||
Total other comprehensive loss | (348 | ) | (206 | ) | (648 | ) | ||||||||||
Total comprehensive income | 15,611 | 2,257 | 11,665 | |||||||||||||
Net income | $ | 15,959 | $ | 2,463 | $ | 12,313 | ||||||||||
Dividends distributed or available for distribution to senior preferred stockholder | (12,613 | ) | (8,944 | ) | (12,236 | ) | ||||||||||
Net income (loss) attributable to common stockholders | $ | 3,346 | $ | (6,481 | ) | $ | 77 | |||||||||
Earnings (loss) per share: | ||||||||||||||||
Basic | $ | 0.58 | $ | (1.12 | ) | $ | 0.01 | |||||||||
Diluted | 0.57 | (1.12 | ) | 0.01 | ||||||||||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic | 5,762 | 5,762 | 5,762 | |||||||||||||
Diluted | 5,893 | 5,762 | 5,893 | |||||||||||||
See Notes to Consolidated Financial Statements in 2018 Form 10-K
Fourth Quarter and Full Year 2018 Results | 13 | |
FANNIE MAE
(In conservatorship)
Consolidated Statements of Cash Flows
(Dollars in millions)
For the Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Cash flows provided by (used in) operating activities: | ||||||||||||
Net income | $ | 15,959 | $ | 2,463 | $ | 12,313 | ||||||
Reconciliation of net income to net cash used in operating activities: | ||||||||||||
Amortization of cost basis adjustments | (5,949 | ) | (6,641 | ) | (6,821 | ) | ||||||
Benefit for credit losses | (3,309 | ) | (2,041 | ) | (2,155 | ) | ||||||
Valuation gains | (911 | ) | (1,573 | ) | (472 | ) | ||||||
Current and deferred federal income taxes | 3,680 | 14,369 | 4,309 | |||||||||
Net gains related to the disposition of acquired property and preforeclosure sales, including credit enhancements | (1,785 | ) | (2,426 | ) | (3,124 | ) | ||||||
Other, net | 440 | (406 | ) | (1,778 | ) | |||||||
Net change in trading securities | (5,454 | ) | 4,511 | (3,005 | ) | |||||||
Interest payment on discounted debt | (423 | ) | (4,043 | ) | (247 | ) | ||||||
Net cash provided by (used in) operating activities | 2,248 | 4,213 | (980 | ) | ||||||||
Cash flows provided by investing activities: | ||||||||||||
Proceeds from maturities and paydowns of trading securities held for investment | 182 | 1,206 | 1,840 | |||||||||
Proceeds from sales of trading securities held for investment | 96 | 241 | 1,618 | |||||||||
Proceeds from maturities and paydowns of available-for-sale securities | 695 | 2,009 | 2,927 | |||||||||
Proceeds from sales of available-for-sale securities | 760 | 1,990 | 11,378 | |||||||||
Purchases of loans held for investment | (172,155 | ) | (189,593 | ) | (233,935 | ) | ||||||
Proceeds from repayments of loans acquired as held for investment of Fannie Mae | 15,082 | 22,557 | 25,294 | |||||||||
Proceeds from sales of loans acquired as held for investment of Fannie Mae | 17,511 | 10,241 | 5,222 | |||||||||
Proceeds from repayments and sales of loans acquired as held for investment of consolidated trusts | 401,045 | 435,637 | 543,690 | |||||||||
Advances to lenders | (108,294 | ) | (123,687 | ) | (140,147 | ) | ||||||
Proceeds from disposition of acquired property and preforeclosure sales | 9,321 | 12,221 | 16,115 | |||||||||
Net change in federal funds sold and securities purchased under agreements to resell or similar arrangements | (13,468 | ) | 10,945 | (3,065 | ) | |||||||
Other, net | 78 | 641 | 116 | |||||||||
Net cash provided by investing activities | 150,853 | 184,408 | 231,053 | |||||||||
Cash flows used in financing activities: | ||||||||||||
Proceeds from issuance of debt of Fannie Mae | 789,355 | 1,034,742 | 982,272 | |||||||||
Payments to redeem debt of Fannie Mae | (834,366 | ) | (1,082,427 | ) | (1,042,861 | ) | ||||||
Proceeds from issuance of debt of consolidated trusts | 357,846 | 383,793 | 437,392 | |||||||||
Payments to redeem debt of consolidated trusts | (471,151 | ) | (514,637 | ) | (580,642 | ) | ||||||
Payments of cash dividends on senior preferred stock to Treasury | (9,372 | ) | (12,015 | ) | (9,624 | ) | ||||||
Proceeds from senior preferred stock purchase agreement with Treasury | 3,687 | — | — | |||||||||
Other, net | 63 | 6 | 14 | |||||||||
Net cash used in financing activities | (163,938 | ) | (190,538 | ) | (213,449 | ) | ||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (10,837 | ) | (1,917 | ) | 16,624 | |||||||
Cash, cash equivalents and restricted cash at beginning of period | 60,260 | 62,177 | 45,553 | |||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 49,423 | $ | 60,260 | $ | 62,177 | ||||||
Cash paid during the period for: | ||||||||||||
Interest | $ | 110,415 | $ | 109,480 | $ | 104,318 | ||||||
Income taxes | 460 | 3,090 | 1,711 | |||||||||
Non-cash activities: | ||||||||||||
Net mortgage loans acquired by assuming debt | $ | 231,478 | $ | 258,312 | $ | 275,710 | ||||||
Net transfers from mortgage loans of Fannie Mae to mortgage loans of consolidated trusts | 185,310 | 193,809 | 223,705 | |||||||||
Transfers from advances to lenders to loans held for investment of consolidated trusts | 102,865 | 118,282 | 130,886 | |||||||||
Net transfers from mortgage loans to acquired property | 8,131 | 10,262 | 13,768 | |||||||||
Transfers of mortgage loans from held for investment to held for sale | 21,960 | 12,886 | 3,878 | |||||||||
See Notes to Consolidated Financial Statements in 2018 Form 10-K
Fourth Quarter and Full Year 2018 Results | 14 | |
FANNIE MAE
(In conservatorship)
Consolidated Statements of Changes in Equity (Deficit)
(Dollars and shares in millions, except per share amounts)
Fannie Mae Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||
Shares Outstanding | Senior Preferred Stock | Preferred Stock | Common Stock | Accumulated Deficit | Accumulated Other Comprehensive Income | Treasury Stock | Non Controlling Interest | Total Equity (Deficit) | |||||||||||||||||||||||||||||||||
Senior Preferred | Preferred | Common | |||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2015 | 1 | 556 | 1,158 | $ | 117,149 | $ | 19,130 | $ | 687 | $ | (126,942 | ) | $ | 1,407 | $ | (7,401 | ) | $ | 29 | $ | 4,059 | ||||||||||||||||||||
Change in investment in noncontrolling interest | — | — | — | — | — | — | — | — | — | (29 | ) | (29 | ) | ||||||||||||||||||||||||||||
Senior preferred stock dividends paid ($9,623.37/share) | — | — | — | — | — | — | (9,624 | ) | — | — | — | (9,624 | ) | ||||||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 12,313 | — | — | — | 12,313 | ||||||||||||||||||||||||||||||
Other comprehensive income, net of tax effect: | |||||||||||||||||||||||||||||||||||||||||
Changes in net unrealized gains on available-for-sale securities (net of taxes of $30) | — | — | — | — | — | — | — | (55 | ) | — | — | (55 | ) | ||||||||||||||||||||||||||||
Reclassification adjustment for gains included in net income (net of taxes of $316) | — | — | — | — | — | — | — | (587 | ) | — | — | (587 | ) | ||||||||||||||||||||||||||||
Other, net of taxes | — | — | — | — | — | — | — | (6 | ) | — | — | (6 | ) | ||||||||||||||||||||||||||||
Total comprehensive income | 11,665 | ||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2016 | 1 | 556 | 1,158 | $ | 117,149 | $ | 19,130 | $ | 687 | $ | (124,253 | ) | $ | 759 | $ | (7,401 | ) | $ | — | $ | 6,071 | ||||||||||||||||||||
Senior preferred stock dividends paid ($12,015.34/share) | — | — | — | — | — | — | (12,015 | ) | — | — | — | (12,015 | ) | ||||||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 2,463 | — | — | — | 2,463 | ||||||||||||||||||||||||||||||
Other comprehensive income, net of tax effect: | |||||||||||||||||||||||||||||||||||||||||
Changes in net unrealized gains on available-for-sale securities (net of taxes of $28) | — | — | — | — | — | — | — | 53 | — | — | 53 | ||||||||||||||||||||||||||||||
Reclassification adjustment for gains included in net income (net of taxes of $139) | — | — | — | — | — | — | — | (259 | ) | — | — | (259 | ) | ||||||||||||||||||||||||||||
Total comprehensive income | 2,257 | ||||||||||||||||||||||||||||||||||||||||
Other | — | — | — | — | — | — | — | — | 1 | — | 1 | ||||||||||||||||||||||||||||||
Balance as of December 31, 2017 | 1 | 556 | 1,158 | $ | 117,149 | $ | 19,130 | $ | 687 | $ | (133,805 | ) | $ | 553 | $ | (7,400 | ) | $ | — | $ | (3,686 | ) | |||||||||||||||||||
Senior preferred stock dividends paid ($9,372.35/share) | — | — | — | — | — | — | (9,372 | ) | — | — | — | (9,372 | ) | ||||||||||||||||||||||||||||
Increase to senior preferred stock | — | — | — | 3,687 | — | — | — | — | — | — | 3,687 | ||||||||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 15,959 | — | — | — | 15,959 | ||||||||||||||||||||||||||||||
Other comprehensive income, net of tax effect: | |||||||||||||||||||||||||||||||||||||||||
Changes in net unrealized gains on available-for-sale securities (net of taxes of $21) | — | — | — | — | — | — | — | (79 | ) | — | — | (79 | ) | ||||||||||||||||||||||||||||
Reclassification adjustment for gains included in net income (net of taxes of $70) | — | — | — | — | — | — | — | (265 | ) | — | — | (265 | ) | ||||||||||||||||||||||||||||
Other, net of taxes | — | — | — | — | — | — | — | (4 | ) | — | — | (4 | ) | ||||||||||||||||||||||||||||
Total comprehensive income | 15,611 | ||||||||||||||||||||||||||||||||||||||||
Reclassification related to Tax Cuts and Jobs Act | — | — | — | — | — | — | (117 | ) | 117 | — | — | — | |||||||||||||||||||||||||||||
Balance as of December 31, 2018 | 1 | 556 | 1,158 | $ | 120,836 | $ | 19,130 | $ | 687 | $ | (127,335 | ) | $ | 322 | $ | (7,400 | ) | $ | — | $ | 6,240 | ||||||||||||||||||||
See Notes to Consolidated Financial Statements in 2018 Form 10-K
Fourth Quarter and Full Year 2018 Results | 15 | |
Exhibit 99.2 FannieMae FinancialSupplement Q4Yearand2018Full February 14, 2019 14, February © 2019 Fannie Mae. Trademarks of Fannie Mae.Fannie TrademarksMae.of © Fannie 2019
§ Some of the terms and other information in this presentation are defined and discussed more fully in Fannie Mae’s Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”). This presentation should be reviewed together with the 2018 Form 10-K, which is available at www.fanniemae.com in the “About Us—Investor Relations—SEC Filings” section. Information on or available through the company's website is not part of this supplement. § Some of the information in this presentation is based upon information from third-party sources such as sellers and servicers of mortgage loans. Although we generally consider this information reliable, we do not independently verify all reported information. § Due to rounding, amounts reported in this presentation may not add to totals indicated (or 100%). § Unless otherwise indicated, data is as of December 31 or for the full year indicated. § Note references are to endnotes, appearing on pages 22 to 24. § Terms used in presentation CAS: Connecticut Avenue Securities® CIRT™: Credit Insurance Risk Transfer™ CRT: credit risk transfer DTI ratio: Debt-to-income ratio DUS ® : Fannie Mae’s Delegated Underwriting and Servicing program GDP: U.S. gross domestic product HARP ® : Home Affordable Refinance Program, which allows eligible Fannie Mae borrowers with high LTV ratio loans to refinance into more sustainable loans LTV ratio: loan-to-value ratio MSA: metropolitan statistical area MTMLTV ratio: mark-to-market loan-to-value ratio OLTV ratio: origination loan-to-value ratio Refi Plus™: our Refi Plus initiative, which offers refinancing flexibility to eligible Fannie Mae borrowers REO: real estate owned TCCA: Temporary Payroll Tax Cut Continuation Act of 2011 UPB: unpaid principal balance DSCR: Debt Service Coverage Ratio © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 1
Table of Contents Financial Overview Corporate Financial Highlights 4 Market Liquidity 5 Key Market Economic Indicators 6 Treasury Draws and Dividend Payments 7 Single-Family Business Single-Family Highlights 9 Certain Credit Characteristics of Single-Family Loan Acquisitions 10 Certain Credit Characteristics of Single-Family Conventional Guaranty Book of Business 11 Single-Family Credit Risk Transfer 12 Single-Family Problem Loan Statistics 13 Credit Loss Concentration of Single-Family Conventional Guaranty Book of Business 14 Single-Family Cumulative Default Rates 15 Multifamily Business Multifamily Highlights 17 Certain Credit Characteristics of Multifamily Acquisitions 18 Certain Credit Characteristics of Multifamily Guaranty Book of Business 19 Multifamily Serious Delinquency Rates and Credit Losses 20 Endnotes Financial Overview Endnotes 22 Single-Family Business Endnotes 23 Multifamily Business Endnotes 24 © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 2
Financial Overview © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 3
Corporate Financial Highlights Sources of Net Interest Income and Retained Mortgage Summary of 2018 Financial Results Portfolio Balance 2018 2017 Variance 100% $1,000 Net interest income $20,951 $20,733 $218 $800 80% Fee and other income ______9_7_9_______2_,2__2_7_____(_1_,2_4__8_)_ $600 60% NNet reevveennuueses 21,930 22,960 (1,030) $400 Investment gains, net 952 1,522 (570) 40% $413.3 $345.1 % N $272.4 e $200 Fair value gains (losses), net 1,121 (1,211) 2,332 t 20% $230.8 I n $179.2 t R e e r t e a Administrative expenses (3,059) (2,737) (322) s 0% $0 i t n I e n 2014 2015 2016 2017 2018 d c o M m Credit-related income o e Net interest income from retained mortgage portfolio and other activities r t (1) g Net interest income from guaranty fees and other consolidated trust income a g e Benefit for credit losses 3,309 2,041 1,268 Retained mortgage portfolio at end of period P o r t f o l i Foreclosed property expense (617) (521) (96) o _______________________________ ( $ ) Key Highlights B i l Total credit-related income 2,692 1,520 1,172 l i o n Temporary Payroll Tax Cut Continuation Act of 2011 s (2,284) (2,096) (188) § Fannie Mae reported net income of $16.0 billion for (TCCA) fees 2018 and $3.2 billion for Q4 2018, reflecting the strength Other expenses, net (1,253) (1,511) 258 of the company’s underlying business fundamentals. _______________________________ Income before federal income taxes 20,099 18,447 1,652 § The increase in pre-tax income in 2018, compared with 2017, was driven primarily by a shift to fair value gains from fair value losses Provision for federal income taxes (4,140) (15,984) 11,844 and an increase in credit-related income, partially offset by a _______________________________ decrease in fee and other income. Neett I innccoomme e $15,959 $2,463 $13,496 § The $16.0 billion net income for 2018 compares with $2.5 billion in Other comprehensive loss (348) (206) (142) 2017. The increase was driven primarily by the absence of a $9.9 _______________________________ billion one-time charge for federal income taxes recorded in 2017 Tottaall c coommprperheehnesinves iivnec oimnceome $15,611 $2,257 $13,354 and the lower corporate tax rate in effect as a result of the Tax Cuts _______________________________ and Jobs Act of 2017. © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 4
Market Liquidity Key Highlights: Providing Liquidity to the Mortgage Market Liquidity Provided Fannie Mae provided $512 billion in liquidity to the mortgage market in 2018, through its purchases of loans and guarantees of loans and securities, which enabled the financing of approximately 1.9 million loans acquired, of which 1.2 million were home purchases and 0.7 million were refinancings. 3.0M 0.7M 0.8M 2.5M 1.2M 0.6M 0.8M Home Purchases 0.4M 2.0M 1.1M 1.0M 1.2M 1.5M 713K 0.9M Refinancings 1.2M 1.0M 1.4M 1.2M 1.0M 777K 0.5M 0.9M 0.7M Rental Units 0.0M 2014 2015 2016 2017 2018 Rental Units Mortgage Refinancings (Loans) Home Purchases (Loans) © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 5
Key Market Economic Indicators (2) U.S. GDP Growth Rate and Benchmark Interest Rates Single-Family Home Price Growth Rate (3) Unemployment Rate 3.50% 6.0% 5.6% 5.6% 5.6% 4.0% 6.0% 5.6% 5.0% 3.00% 3.13% 3.00% 4.5% 4.7% 2.83% 2.68% 4.1% 4.0% 4.1% 3.9% 2.41% 2.17% 2.27% 4.0% 2.66% 2.0% 2.44% 3.4% 2.08% 1.18% 2.0% 2.9% 0.90% 2.0% 2.5% 1.45% H 2.2% R R o 1.6% a a m t t e e e ( ( 0.0% P 0.0% 0.0% a a r s s i c o 2014 2015 2016 2017 2018 o 2014 2015 2016 2017 2018 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 e f f G p p e e 10-year Treasury rate r Change based on Fannie Mae national home price index U.S. GDP Growth Rate, annualized for most recent period o r r i i w o o t d 2-year swap rate d U.S. Unemployment Rate h e e n n d 30-year Fannie MBS par coupon rate d ) ) One Year Home Price Change as of Q4 2018 (2) United States 5.6% Top 10 States by UPB (2) WA ND MT MN Share of Fannie ME Mae Single-Family SD WI State Home Price Conventional OR ID NH Growth Rate Guaranty Book WY MI NY CA 6.7% 19.3% IA MA 3.6% 6.4% AK NE TX PA FL 7.5% 5.7% IL IN OH NJ NY 5.8% 4.9% NV UT MD CO WA 7.8% 3.7% KS MO WV DE KY VA IL 3.5% 3.6% CA NJ 4.3% 3.5% OK TN NC VA 3.6% 3.4% AZ NM AR CO 7.2% 3.1% SC PA 5.2% 3.0% MS AL GA TX LA State Growth Rate 0 to 4.9% HI FL 5 to 9.9% 10% and above © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 6
Treasury Draws and Dividend Payments Treasury Draws and Dividend Payments: 2008 - 2018 $180.0 $175.8 $160.0 $144.8 $140.0 $119.8 $120.0 $116.1 $100.0 ( $ ) B i $80.0 l l i o n s $60.0 $40.0 $20.0 $12.0 $9.6 $9.4 $3.7 $0.0 $0.0 $0.0 (4) Draws from2008-D20iv1i5dend payments Draws from 20D16ividend payments Draws from 20D1i7vidend payments Draws from 201D8ividend payments Draws from TotDailvidend payments Treasury to Treasury Treasury to Treasury Treasury to Treasury Treasury to Treasury Treasury to Treasury (5) Draws from Treasury Dividend payments to Treasury © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 7
Single-Family Business © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 8
Single-Family Highlights (1) (1) 2018 Single-Family Conventional Loan Acquisitions Conventional Guaranty Book of Business $200 50 $4,000 50 49.7 48.5 42.3 42.5 42.8 43.0 47.8 42.3 42.9 40 40 $18,162M $150 41.7 $3,000 $2,850 $2,870 $2,877 $2,890 $2,901 Net interest income $128 $122 $112 $110 30 30 $35 $101 $100 $59 $2,000 $39 $52 $31 20 B 20 B a a U U s s i i P P s s B B P P o o ( $50 ( $1,000 $ $ i i $88 n n ) ) $2,709M 10 t 10 t B B $69 $72 $70 s s i $60 i l l Credit-related income l l i i o o n n s $0 0 s $0 0 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 (2) Refinance Average charged guaranty fee on conventional guaranty book, net of TCCA (bps) Purchase Average UPB outstanding of Single-Family conventional guaranty book (2) $1,210M Average charged guaranty fee on new acquisitions, net of TCCA (bps) Fair value gains, net 2018 Market Share: Single-Family Key Highlights Mortgage Acquisitions Private-label securities § Single-family net income was $13.7 billion in 2018, compared 3% with $1.5 billion in 2017. The increase was driven primarily by the Held by lender absence of a one-time charge for federal income taxes recorded in $850M 27% Fannie Mae 2017 that resulted from the enactment of the Tax Cuts and Jobs Investment gains, net 27% Act of 2017. § Single-family net income was $2.7 billion in Q4 2018, compared with $3.5 billion in Q3 2018. The decrease was driven primarily by fair value losses in Q4 compared with fair value gains in Q3, driven by a decrease in interest rates in Q4. $13,746M § The single-family guaranty book of business continued to grow in Net income Ginnie Mae Freddie Mac Q4 2018, while the average charged guaranty fee (net of TCCA 24% 19% fees) on the single-family guaranty book in Q4 was relatively consistent with the prior quarter at 43 basis points. © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 9
Certain Credit Characteristics of Single-Family Loan Acquisitions 2018 Acquisition Certain Credit Characteristics of Single-Family Conventional Loans Credit Profile by by Acquisition Period Certain Product Features Loans with Loans with Loans with Full Year OLTV FICO Credit DTI (1) (3) (4) Categories are not mutually exclusive Q4 2017 Full Year 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 2018 Ratio > 90% Score < 660 Ratio > 45% Total Unpaid Principal Balance (UPB) ($B) $127.9 $501.8 $112.2 $110.5 $122.3 $101.1 $446.1 $100.5 $26.5 $110.5 Total UPB excluding Refi Plus ($B) $125.2 $487.7 $110.3 $109.1 $121.4 $100.3 $441.1 $99.9 $25.2 $110.5 Weighted Average Origination LTV (OLTV) Ratio 76% 75% 75% 77% 78% 78% 77% 96% 75% 77% Origination LTV Ratio > 90% 18% 18% 19% 23% 24% 25% 23% 100% 18% 23% ® (3) Weighted Average FICO Credit Score 743 745 743 743 743 742 743 738 641 734 (3) FICO Credit Score < 660 6% 6% 6% 6% 6% 6% 6% 5% 100% 7% DTI Ratio > 45%(4) 19% 10% 23% 26% 25% 26% 25% 25% 29% 100% Fixed-rate 98% 97% 98% 98% 98% 99% 98% 100% 100% 99% Condo/Co-op 10% 10% 9% 10% 10% 10% 10% 9% 7% 10% Origination (3) FICO Credit Score Acquisitions by Loan Purpose Loan-to-Value Ratio 100% 40% 800 100% 748 750 14% 744 745 743 12% 12% 20% 80% 77% 75% 77% 12% 75% 74% 80% 33% 30% 20% 30% 600 22% 10% 22% 60% 23% 60% 16% 8% 19% 19% 18% 18% 20% 400 7% 6% 16% 15% 6% 40% 5% 6% 40% 4% S 65% O h 4% F 56% a r 10% I 52% i r 200 C g e W 45% 44% O 20% i n o 20% e a f C W i t A g 2% r i e e h o c d i n q t g e i u h t L d i t 0% 0% 0 0% S T s 0% e A i c V d t v o i o e 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 r A > 2014 2015 2016 2017 2018 e r n v a 9 s < e g 0 r e 6 a OLTV > 90% % FICO Credit Score < 660 6 g Refi Plus including HARP O e 0 L Weighted Average OLTV Ratio F Weighted Average FICO Credit Score T I Refinance (excluding cash-out & Refi Plus) V C O R Cash-out refinance a C t r i e o Purchase d i t S c o © 2019 Fannie Mae. Trademarks of Fannie Mae. r 2018 Financial Supplement 10 e
Certain Credit Characteristics of Single-Family Conventional Guaranty Book of Business Certain Credit Characteristics of Single-Family Conventional Guaranty Book of Business by Origination Year and Product Features(5) Origination Year Certain Product Features (1) (3) As of December 31, 2018 Loans with Overall 2004 & Refi Plus FICO Credit Origination LTV (6) Categories are not mutually exclusive Book Earlier 2005-2008 2009-2015 2016 2017 2018 Including HARP Alt-A Score < 660 Ratio > 90% Total Unpaid Principal Balance (UPB) ($B) $2,903.3 $79.5 $135.9 $1,409.2 $463.4 $432.0 $383.4 $330.3 $56.1 $192.6 $516.5 Average Unpaid Principal Balance $170,076 $71,374 $123,457 $156,287 $213,468 $216,565 $228,998 $133,970 $133,830 $134,921 $179,134 Share of Single-Family Conventional Guaranty Book 100% 3% 5% 49% 16% 15% 13% 11% 2% 7% 18% (7) Serious Delinquency Rate 0.76% 2.69% 4.61% 0.43% 0.26% 0.23% 0.05% 0.69% 3.35% 3.48% 1.18% Weighted Average Origination LTV Ratio 75% 74% 76% 75% 74% 76% 78% 86% 80% 79% 100% Origination LTV Ratio > 90% 18% 14% 15% 17% 16% 19% 23% 38% 19% 24% 100% (8) Weighted Average Mark-to-Market LTV Ratio 57% 38% 61% 48% 60% 68% 75% 53% 58% 60% 77% (3) Weighted Average FICO Credit Score 746 700 695 752 751 744 742 730 709 629 733 (9) Share of Loans with Credit Enhancement 47% 7% 18% 37% 64% 71% 55% 11% 8% 36% 76% Fixed-rate 98% 88% 92% 98% 99% 98% 99% 99% 89% 98% 99% Weighted Average Mark-To-Market (3) (7) (10) FICO Credit Score Serious Delinquency Rate by Vintage Loan-to-Value (MTMLTV) Ratio 70% 10% 800 745 745 746 20% 8.39% 64% 744 744 62% 8.0% 60% 7.60% 60% 58% 57% 8% 6.39% 6.55% 600 15% 50% 6.0% 6% 40% 5% 4.61% 400 10% 4.0% 30% 8% 8% 4% 7% 3.26% 3.28% 7% 3.06% 3% 7% 2.82% % 2.69% M S 20% % e W T r 200 5% F M 1.89% i e o 2% I 2.0% i u C L g 1.55% 2% W 1.20% s h T O 1.24% e t D V e i 10% C g 1% e d > r 0.76% h l e i A t 1 n 0.53% 0% d e 0 v 0.36% q 0.35% 0.36% i d e t 0 0.34% u r S A % e a 0% 0% 0 0% 0.0% c n v g o e c e r r y 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 e M a R g < T e a M 6 t F % MTMLTV > 100% % FICO Credit Score < 660 e 6 I L Total single-family conventional guaranty book of business 0 C T O V Weighted Average MTMLTV Weighted Average FICO Credit Score 2004 and Prior C r e 2005-2008 d i t S 2009-2018 c o r e © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 11
Single-Family Credit Risk Transfer Single-Family Loans Included in Credit Risk Transfer Single-Family Loans with Credit Enhancement Transactions, Balance of Covered Loans $1,500 39% 40% 2016 2017 2018 Percent of Percent of Percent of Credit Enhancement 32% Outstanding Book Outstanding Book Outstanding Book $1,143 Outstanding UPB in ($) Billions UPB Outstanding UPB Outstanding UPB Outstanding 30% (11) Primary mortgage insurance & other $509 18% $566 20% $618 21% $1,000 $927 22% (12) Connecticut Avenue Securities® (CAS) $503 18% $681 24% $798 27% 20% $628 15% (13) U P $500 Credit Insurance Risk Transfer™ (CIRT™) $101 4% $181 6% $243 8% B $429 ( 9% $ 10% ) (12) B $250 i Lender risk-sharing $23 1% $65 2% $102 4% l l i o n % s $0 0% S (Less: loans covered by multiple credit i n ($211) (8%) ($335) (12%) ($394) (13%) g enhancements) 2014 2015 2016 2017 2018 l e ___________________________________________________________________________________________ - F a % Single-family conventional guaranty book in a CRT transaction m Total UPB of single-family loans with credit $925 33% $1,158 40% $1,367 47% (13) i l enhancement UPB outstanding of loans in a CRT transaction y ___________________________________________________________________________________________ C o n v e n Single-Familt y Credit Risk Transfer Issuance i o n a l G $410 u $400 a r $44 a n t $338 y $331 B o $45 $300 o k $233 $239 $265 $200 $240 $206 U P $189 B $222 ( $ $100 ) B i l $102 l $32 $86 i $76 o n $0 $27 $40 s 2013 2014 2015 2016 2017 2018 Lender risk-sharing Connecticut Avenue Securities Credit Insurance Risk Transfer Note: CRT issuance volumes are driven by recent acquisition activity. © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 12
Single-Family Problem Loan Statistics (10) Single-Family Serious Delinquency Rate by State as of December 31, 2018 WA ND WA ND MT MT MN MN ME ME SD WI SD WI OR ID NH AK AK OR ID NH WY MI NY WY MI NY Top 10 States by UPB IA MA IA MA NE NE (14) PA PA Serious Average OH NJ OH NJ IL IN IL IN Delinquency Months to NV UT MD NV UT MD CO CO State Rate Foreclosure KS MO WV DE KS MO WV DE KY VA KY VA CA 0.34% 20 CA CA TX 0.62% 23 OK TN NC OK TN NC FL 1.16% 46 AZ NM AR AZ NM AR SC SC NY 1.40% 66 MS AL GA MS AL GA WA 0.38% 36 IL 0.98% 23 TX TX LA LA NJ 1.38% 55 HI HI VA 0.54% 14 PR FL PR FL CO 0.23% 17 PA 1.07% 24 VI PR VI Less than 0.50% 0.50% to 0.99% 1.00% to 1.99% 3.00% and Above Single-Family Loan Workouts REO Ending Inventory $40 200 100K 164.6K 87K 80K $30 $28.3 150 122.3K $6.6 118.1K 60K 57K $20.7 103.5K 100.6K $20 $19.0 100 $4.2 $17.5 $16.7 $3.1 $2.1 40K 38K U 26K P $21.7 B $10 $17.9 50 R 20K $16.6 E ( 20K $ $14.4 $14.6 O ) E B n i l d l $0 0 N i 0K i o n u n g m s 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 I b n e v r e (15) o Foreclosure Alternatives Loan Workouts (in Thousands) n f t o L r (16) o Home Retention Solutions y a n W o r k o u t s © 2019 Fannie Mae. Trademarks of Fannie Mae. ( 2018 Financial Supplement 13 T h o u s a n d s )
Credit Loss Concentration of Single-Family Conventional Guaranty Book of Business (18) (17) % of Single-Family Credit Losses % of Single-Family Conventional Guaranty Book of Business For the Period Ended Certain Product Features Categories are not mutually exclusive 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Alt-A(9) 4.2% 3.7% 3.1% 2.5% 1.9% 17.4% 29.3% 24.9% 21.9% 22.4% Interest Only 2.5% 2.1% 1.7% 1.2% 0.8% 10.2% 18.0% 12.2% 15.7% 15.4% Origination LTV Ratio > 90% 15.9% 16.3% 16.4% 16.7% 17.8% 15.3% 16.4% 21.9% 23.9% 21.4% (3) FICO Credit Score < 660 and Origination LTV Ratio > 90% 2.0% 2.0% 1.8% 1.7% 1.6% 6.6% 6.5% 8.8% 9.0% 8.8% (3) FICO Credit Score < 660 8.0% 7.8% 7.3% 7.0% 6.6% 29.7% 29.7% 35.8% 33.0% 34.0% Refi Plus including HARP 19.1% 17.6% 15.4% 13.2% 11.4% 10.4% 7.8% 14.0% 15.9% 13.2% Vintage 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2009 - 2018 80.5% 84.1% 87.4% 90.3% 92.6% 13.3% 10.3% 19.0% 23.1% 20.4% 2005 – 2008 12.2% 10.1% 8.1% 6.2% 4.7% 74.7% 77.6% 64.7% 64.8% 65.8% 2004 & Prior 7.3% 5.8% 4.5% 3.5% 2.7% 12.0% 12.1% 16.4% 12.2% 13.8% % of Single-Family Conventional Guaranty Book of Business % of Q4 2018 Single-Family Credit Losses by State by State as of December 31, 2018 4.9% 8.1% 3.5% 3.6% 10.0% 5.7% 10.3% 100% 100% 49.0% $2.9T $2.6B 19.3% 62.9% 12.2% 10.5% All Other States Florida New Jersey All Other States Florida New Jersey California Illinois New York California Illinois New York © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 14
Single-Family Cumulative Default Rates (19) Cumulative Default Rates of Single-Family Conventional Guaranty Book of Business by Origination Year 2007 2006 14.0% 12.0% 10.0% 2005 8.0% C u 2008 m 6.0% u l a t i v e D 2004 e f a 4.0% u l t R a t e 2003 2.0% 2009 2010 2014 2012 2011 2015 2013 2002 2018 2017 2016 0.0% Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y r r r Y r r Y r r Y r r r r r r r r r r r r r r r r r r r r r r r r r r r r r 1 r 7 5 1 3 1 2 1 4 6 9 r r r 8 7 7 r 7 5 5 5 3 2 3 3 4 6 9 2 2 4 6 9 4 6 9 8 8 8 r r r - 1 - 1 - 1 1 - - 1 - - - - - - - - - 1 1 - 1 - - - - - Q - - - - - - - - - - - - - 1 - - - Q Q Q Q 1 1 1 Q 0 Q Q Q Q Q Q Q Q Q Q Q Q 0 Q 0 Q 0 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q - - - - 1 - Q 3 2 4 1 1 - Q - 1 - Q Q 1 3 1 1 1 2 4 3 2 4 1 3 2 4 3 2 3 4 3 3 2 2 2 4 4 4 3 2 4 Q Q Q Q 1 3 2 Time Since Beginning of Origination Year 4 1 3 2 4 2002 2004 2006 2008 2010* 2012* 2014* 2016* 2018* 2003 2005 2007 2009* 2011* 2013* 2015* 2017* * As of December 31, 2018, cumulative default rates on loans originated from 2009-2018 were less than 1% © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 15
Multifamily Business © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 16
Multifamily Highlights (1) 2018 Acquisitions Guaranty Book of Business $400 100% $21.4 98% $20.3 96% 97% 97% 97% $20.0 $18.2 $305.9 $296.1 80% $2,789M $300 $277.3 $281.3 $287.6 Net interest income $15.0 $14.5 60% $11.3 $200 $10.0 40% U U L P P e B B $100 n d ( ( $529M e $ $ $5.0 20% r ) ) R B B i i Fee and other s i S l l k l l h i i S o o $0 0% a $0.0 h n r income n e a s s r o Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 i f n M g u Other rental business volume Multifamily new business volume Share of guaranty book with lender risk-sharing l t i f a UPB outstanding of Multifamily guaranty book of business m i l y G u a Multifamily Guaranty Fee and r $89M a Key Highlights n (2) t y Credit Loss (Benefit) Ratio Fair value losses B o o 100 k w § Multifamily net income was $2.2 billion in 2018 and $580 i t million in Q4 2018. Net income increased in 2018 driven h 78.7 78.9 78.6 77.0 80 75.4 primarily by the absence of a one-time charge for federal income taxes recorded in 2017 that resulted from the enactment of the $17M 60 Tax Cuts and Jobs Act of 2017. Credit-related § Fannie Mae continued to share credit risk with lenders on nearly expense 40 100% of the company’s new business through its Delegated B ® a Underwriting and Servicing (DUS ) program. In addition, s i s P the company completed its third and fourth multifamily Credit o 20 i n Insurance Risk Transfer™ (CIRT™) transactions in 2018, which t s covered approximately $22 billion in loans. 1.0 (0.7) 0.6 0.6 0.3 0 $2,213M § The multifamily guaranty book of business continued to grow in Net income Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q4 2018 reaching over $300 billion, while the average charged Annualized credit loss (benefit) ratio guaranty fee on the multifamily book decreased slightly to 75.4 Average charged guaranty fee at end of period (bps) basis points as of December 31, 2018. © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 17
Certain Credit Characteristics of Multifamily Acquisitions Certain Credit Chacteristics of Multifamily Loans by Acquisition Period Categories are not mutually exclusive 2014 2015 2016 2017 2018 Total Unpaid Principal Balance (UPB) ($B) $28.9 $42.4 $55.3 $67.1 $65.4 Weighted Average Origination LTV Ratio 68% 68% 68% 67% 65% Loan Count 2,361 2,869 3,335 3,861 3,723 (3) % Lender Recourse 99% 99% 99% 100% 100% (4) % DUS™ 99% 99% 99% 98% 99% Top 10 MSAs by 2018 Origination Loan-to-Value Ratio Acquisitions by Note Type Acquisition UPB 100% 100% $2.4B $2.6B 11% 21% 23% 20% $1.6B 28% 80% 80% 48% 48% 50% $3.5B 57% 66% $1.8B 60% 60% Share of Acquistions: 39.5% $1.6B Total UPB: $25.8B 89% 40% 40% 79% 80% $2.3B 72% 77% S S h h a a r 51% 51% 49% r e $2.2B e 43% o 20% o 20% f f 33% A A c c q q u u i $4.3B i s s i 0% i 0% t $3.5B t i i o o n 2014 2015 2016 2017 2018 n 2014 2015 2016 2017 2018 s s % OLTV less than or equal to 70% Atlanta Phoenix Variable Rate % OLTV greater than 70% and less than or equal to 80% Dallas San Diego Fixed Rate % OLTV greater than 80% Houston San Francisco Los Angeles Seattle New York Washington, DC © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 18
Certain Credit Characteristics of Multifamily Guaranty Book of Business Certain Credit Characteristics of Multifamily Book of Business by Acquisition Year, Asset Class, or Targeted Affordable Segment Acquisition Year Asset Class or Targeted Affordable Segment (1) As of December 31, 2018 Overall 2004 & Conventional Privately Owned Categories are not mutually exclusive Book Eariler 2005 - 2008 2009 - 2015 2016 2017 2018 / Co-op(5) Senior(5) Student(5) Manufactured(5) with Subsidy(6) Total Unpaid Principal Balance (UPB) ($B) $305.9 $5.4 $8.4 $112.1 $49.8 $64.9 $65.3 $267.3 $15.8 $11.7 $11.2 $35.4 Average Unpaid Principal Balance ($M) $11.2 $4.8 $2.2 $9.4 $16.8 $17.4 $17.6 $10.6 $23.6 $19.7 $11.1 $9.4 Weighted Average Origination LTV Ratio 66% 70% 66% 66% 68% 67% 65% 66% 67% 67% 67% 69% (7) Weighted Average DSCR 2.0 3.0 2.2 2.0 2.0 1.9 1.9 2.0 2.0 1.8 2.1 2.2 % Fixed-rate 85% 18% 49% 91% 82% 82% 89% 86% 62% 83% 88% 71% Loan Count 27,380 1,135 3,882 11,951 2,970 3,723 3,719 25,111 668 594 1,007 3,754 % of Book 100% 2% 3% 37% 16% 21% 21% 87% 5% 4% 4% 12% (8) % of Small Balance Loans 39% 67% 87% 39% 19% 18% 16% 41% 2% 14% 27% 40% (3) % Lender Recourse 98% 95% 77% 96% 99% 100% 100% 97% 100% 99% 100% 96% (4) % DUS 98% 97% 86% 98% 99% 97% 99% 98% 98% 100% 100% 95% (9) Serious Delinquency Rate 0.06% 0.00% 0.39% 0.09% 0.00% 0.06% 0.01% 0.07% 0.00% 0.00% 0.00% 0.10% Multifamily Book of Business UPB by Maturity Year Top 10 MSAs by UPB by Note Type $5.9B $9.5B $8.9B 100% $13.3B $12.3B $7.3B 19% 20% 20% 18% 15% $19.9B $9.1B 80% $20.4B $14.7B $8.8B Share of Book Share of Book 60% of Business: 100% of Business: 41.1% Total UPB: $305.9B Total UPB: $125.8B 85% $7.6B 40% 81% 80% 80% 82% $9.8B 20% S $237.0B h $26.4B $20.8B a r 0% e o 2014 2015 2016 2017 2018 f M u 2019 2022 Atlanta New York l Variable Rate t i f a 2020 2023 Chicago Phoenix m Fixed Rate i l 2021 Other Dallas San Francisco y B o Houston Seattle o k Los Angeles Washington, DC o f B u s i n e s s © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 19
Multifamily Serious Delinquency Rates and Credit Losses (4) (10) DUS/Non-DUS Cumulative Credit Loss Rates by Acquisition Year Through 2018 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2.0% 1.5% 1.4% 1.2% 1.1% 0.9% 1.0% 0.9% 0.9% 0.8% 0.8% C r e d 0.5% i 0.5% t 0.4% 0.4% L 0.3% o 0.3% s 0.2% 0.2% 0.3% s R 0.1% 0.1%0.1% 0.1% a t 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%0.0% 0.0% e 0.0% DUS Credit Loss Rate Total Credit Loss Rate Non-DUS Credit Loss Rate Serious Delinquency Rates(4) (9) Credit Loss (Benefit) Ratio (2) (11) 1.40% 1.36% 6.0 1.20% 1.20% 4.0 2.5 1.00% 0.92% 2.0 0.80% 0.6 0.71% 0.63% 0.0 0.59% 0.60% 0.55% B (0.2) (0.7) a s 0.44% 0.56% i s -2.0 0.50% P S 0.40% 0.34% o e (2.3) i n r (2.7) i 0.39% t o s u 0.24% s 0.21% 0.21% -4.0 D 0.20% 0.15% e 0.24% l 0.11% i 0.10% n 0.18% 0.07% 0.05% 0.07% q 0.05% u e 0.00% 0.08% 0.07% 0.08% 0.06% -6.0 n c y 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 R a t e DUS Serious Delinquency Rate Non-DUS Serious Delinquency Rate Multifamily Total Serious Delinquency Rate © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 20
Endnotes © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 21
Financial Overview Endnotes (1) Guaranty fee income includes the impact of a 10 basis point guaranty fee increase implemented in 2012 pursuant to the Temporary Payroll Tax Cut Continuation Act of a 2011, the incremental revenue from which is remitted to Treasury and not retained by the company. (2) Home price estimates are based on purchase transactions in Fannie-Freddie acquisition and public deed data available through the end of December 2018. Including a subsequent data may lead to materially different results. Home price change is not seasonally adjusted. UPB estimates are based on data available through the end of December 2018, and the top 10 states are reported by UPB in descending order. (3) Source: Bureau of Economic Analysis. GDP growth rate for 2018 is the annualized growth rate for Q3 2018, the most recent period for which data are available. (4) Under the terms of the senior preferred stock purchase agreement, dividend payments we make to Treasury do not offset our prior draws of funds from Treasury, and a we are not permitted to pay down draws we have made under the agreement except in limited circumstances. (5) Treasury draws are shown in the period for which requested, not when the funds were received by us. Draw requests have been funded in the quarter following a net worth deficit. © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 22
Single-Family Business Endnotes (1) Single-family conventional loan population consists of: (a) single-family conventional mortgage loans of Fannie Mae; (b) single-family conventional mortgage loans underlying a Fannie Mae MBS; and (c) other credit enhancements that we provide on single-family mortgage assets, such as long-term standby commitments. It excludes non-Fannie Mae a single-family mortgage-related securities held in our retained mortgage portfolio for which we do not provide a guaranty. Conventional refers to mortgage loans and a mortgage-related securities that are not guaranteed or insured, in whole or in part, by the U.S. government or one of its agencies. (2) Calculated based on the average guaranty fee rate for our single-family guaranty arrangements during the period plus the recognition of any upfront cash payments over an a estimated average life. Excludes the impact of a 10 basis point guaranty fee increase implemented in 2012 pursuant to the TCCA, the incremental revenue from which is remitted to a Treasury and not retained by us. (3) FICO credit score is as of loan origination, as reported by the seller of the mortgage loan. (4) Population excludes HARP and other Refi Plus loans acquired under our Refi Plus™ initiative. (5) Calculated based on the aggregate unpaid principal balance of single-family loans for each category divided by the aggregate unpaid principal balance of loans in our single-family a conventional guaranty book of business. Loans with multiple product features are included in all applicable categories. (6) For a description of our Alt-A loan classification criteria, refer to the glossary in Fannie Mae’s 2018 Form 10-K. We discontinued the purchase of newly originated Alt-A loans in a 2009, except for those that represent the refinancing of a loan we acquired prior to 2009, which has resulted in our acquisitions of Alt-A mortgage loans remaining low and the a percentage of the book of business attributable to Alt-A to continue to decrease over time. (7) “Serious delinquency rate" refers to single-family conventional loans that are 90 days or more past due or in the foreclosure process in the applicable origination year, product a feature, or state, divided by the number of loans in our single-family conventional guaranty book of business in that origination year, product feature, or state. (8) The average estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan divided by the estimated current value of the property, which we calculate a using an internal valuation model that estimates periodic changes in home value. Excludes loans for which this information is not readily available. (9) Percentage of loans in our single-family conventional guaranty book of business, measured by unpaid principal balance, included in an agreement used to reduce credit risk by a requiring collateral, letters of credit, mortgage insurance, corporate guarantees, inclusion in a credit risk transfer transaction reference pool, or other agreement that provides for a our compensation to some degree in the event of a financial loss relating to the loan. Because we include loans in reference pools for our Connecticut Avenue Securities and Credit a Insurance Risk Transfer credit risk transfer transactions on a lagged basis, we expect the percentage of our 2018 single-family loan acquisitions with credit enhancement will a increase in the future. (10) The aggregate estimated mark-to-market LTV ratio is based on the unpaid principal balance of the loan as of the end of each period divided by the estimated value of the property a as of the end of the period. (11) Refers to loans included in an agreement used to reduce credit risk by requiring primary mortgage insurance, collateral, letters of credit, corporate guarantees, or other agreements a to provide an entity with some assurance that it will be compensated to some degree in the event of a financial loss. Excludes loans covered by credit risk transfer transactions a unless such loans are also covered by primary mortgage insurance. (12) Outstanding unpaid principal balance represents the underlying loan balance, which is different from the reference pool balance for CAS and some lender risk-sharing a transactions. (13) Includes mortgage pool insurance transactions covering loans with an unpaid principal balance of approximately $7 billion at issuance and approximately $4 billion outstanding a as of December 31, 2018. (14) Measured from the borrowers’ last paid installment on their mortgages to when the related properties were added to our REO inventory for foreclosures completed during the a twelve months of 2018. Home Equity Conversion Mortgages insured by the Department of Housing and Urban Development are excluded from this calculation. (15) Consists of (a) short sales, in which the borrower, working with the servicer and Fannie Mae, sells the home prior to foreclosure for less than the amount owed to pay off the loan, a accrued interest and other expenses from the sale proceeds and (b) deeds-in-lieu of foreclosure, which involve the borrower’s voluntarily signing over title to the property. (16) Consists of (a) modifications, which do not include trial modifications, loans to certain borrowers who have received bankruptcy relief that are accounted for as troubled debt a restructurings, or repayment plans or forbearances that have been initiated but not completed; (b) repayment plans, reflects only those plans associated with loans that were 60 a days or more delinquent; and (c) forbearances, not including forbearances associated with loans that were less than 90 days delinquent when entered. (17) Based on the unpaid principal balance (UPB) of the single-family conventional guaranty book of business as of period end. (18) Credit losses consist of (a) charge-offs net of recoveries and (b) foreclosed property expense (income). Percentages exclude the impact of recoveries that have not been allocated to a specific loans. (19) Defaults include loan foreclosures, short sales, sales to third parties at the time of foreclosure and deeds-in-lieu of foreclosure. Cumulative Default Rate is the total number of a single-family conventional loans in the guaranty book of business originated in the identified year that have defaulted, divided by the total number of single-family conventional loans in the guaranty book of business originated in the identified year. Data as of December 31, 2018 is not necessarily indicative of the ultimate performance of the loans and performance is likely to change, perhaps materially, in future periods. © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 23
Multifamily Business Endnotes (1) Our multifamily guaranty book of business consists of: (a) multifamily mortgage loans of Fannie Mae; (b) multifamily mortgage loans underlying Fannie Mae MBS; a and (c) other credit enhancements that we provide on multifamily mortgage assets. It excludes non-Fannie Mae multifamily mortgage-related securities held in our a retained mortgage portfolio for which we do not provide a guaranty. (2) Credit loss (benefit) ratio represents the credit loss or benefit for the period divided by the average unpaid principal balance of the multifamily guaranty book of a business for the period. Credit benefits are the result of recoveries on previously charged-off amounts. (3) Represents the percentage of loans with lender risk-sharing agreements in place, measured by unpaid principal balance. (4) Under the Delegated Underwriting and Servicing (DUS) program, Fannie Mae acquires individual, newly originated mortgages from specially approved DUS lenders a using DUS underwriting standards and/or DUS loan documents. Because DUS lenders generally share the risk of loss with Fannie Mae, they are able to originate, a underwrite, close and service most loans without our pre-review. (5) See https://www.fanniemae.com/multifamily/products for definitions. Loans with multiple product features are included in all applicable categories. (6) The Multifamily Affordable Business Channel focuses on financing properties that are under an agreement that provides long-term affordability, such as properties a with rent subsidies or income restrictions. (7) Weighted average DSCR is calculated using the most recent property financial operating statements. When operating statement information is not available, the DSCR at the time of acquisition is used. If both are unavailable, the underwritten DSCR is used. Co-op loans are excluded from this metric. (8) Multifamily loans with an original unpaid balance of up to $3 million nationwide or up to $5 million in high cost markets. (9) Multifamily loans are classified as seriously delinquent when payment is 60 days or more past due. (10) Cumulative credit loss rate is the cumulative credit losses (gains) through December 31, 2018 on the multifamily loans that were acquired in the applicable period, as a percentage of the total acquired unpaid principal balance of multifamily loans in the applicable period. (11) Credit loss (benefit) ratio is annualized for the most recent period. © 2019 Fannie Mae. Trademarks of Fannie Mae. 2018 Financial Supplement 24