Fannie Mae reported a decrease in its net income to $4.7 billion in Q3 2023, down from the previous quarter, amidst a challenging housing market characterized by high mortgage rates, soaring home prices, and increasing rents. The decline in net income was partly due to a reduction in benefit for credit losses, which fell to $652 million from $1.3 billion in Q2 2023. This was attributed to write-offs related to the redesignation of certain loans due to increases in single-family home prices.
Nonetheless, the firm continued to play a significant role in the mortgage market, injecting $106 billion and acquiring approximately 224,000 single-family purchase loans. Over 45% of these were for first-time buyers. The company also financed about 159,000 affordable multifamily rental units and 45,000 refinance loans.
The single-family conventional guaranty book grew by $5.5 billion due to an increase in average loan size, while the serious delinquency rate fell to 0.54%. The charged guaranty fee remained stable at 47.0 basis points.
Despite these efforts, Fannie Mae's CEO Priscilla Almodovar highlighted rising mortgage rates, high home prices, a housing supply shortage, and climbing rental costs as significant challenges impacting the sector. The 30-year fixed-rate mortgage rate increased from 6.71% at the end of Q2 to 7.31% at the end of Q3. National home prices also grew by 1.7% in Q3 compared to a 3.8% rise in Q2.
On the multifamily front, business volume rose from $15.1 billion in Q2 to $16.4 billion in Q3 with the guaranty book growing by 2% to $464.7 billion. However, the serious delinquency rate also increased from 0.37% to 0.54%.
Despite the decrease in net income, Fannie Mae's actions resulted in an increase in the GSE's net worth to $73.7 billion, assisting 428,000 households, many of whom were low- to moderate-income borrowers and first-time homebuyers. The company also saw an increase in fair value gains, which rose to $795 million, and strong net interest income driven by base guaranty fee income.
InvestingPro Insights
Drawing on real-time data from InvestingPro, Fannie Mae's market cap stands at $4290M USD, with a P/E ratio of -373.50, implying that the company is currently not profitable. Over the last twelve months as of Q2 2023, the company's revenue was $24.34B USD, representing a decline of 25.86% in revenue growth. Despite this, the company has seen significant returns with a 1 month price total return of 20.68% and a 3 month price total return of 69.39%.
InvestingPro Tips highlight that while Fannie Mae has seen a declining trend in earnings per share, it has demonstrated a strong return over the last three months. The company is a prominent player in the Financial Services industry and its stock generally trades with high price volatility. Importantly, the company's liquid assets exceed short term obligations, providing financial stability.
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