Fannie Mae doubles net worth but remains very undercapitalized

Even as Fannie Mae's net worth almost doubled in the fourth quarter of 2021 compared with 12 months prior, the government-sponsored enterprise remains significantly undercapitalized, company executives warned on its fourth quarter earnings call.

Its $47.4 billion in net worth was an increase of $5.2 billion from the third quarter's $42.2 billion and a $22.1 billion gain over $25.3 billion as of Dec. 31, 2020.

By contrast, Fannie Mae's balance sheet totals $4 trillion, CEO Hugh Frater said. Enabling the increase in net worth was full year’s earnings of $22.2 billion; that is nearly double the $11.8 billion reported for 2020.

"As a point of reference, the deficit of our core capital to our statutory minimum capital was $100.3 billion as of the end of the last year," added Chryssa Halley, executive vice president and chief financial officer. "It's important to note that the enterprise regulatory capital framework requires substantially higher levels of capital than our statutory minimum capital."

Fannie Mae's efforts to build sufficient capital to meet those requirements can be significantly affected by growth in the book of business, which in turn can drive increases in required capital that offset or even outpace future increases in available capital, Halley said.

Within the past two years, nearly two-thirds of Fannie Mae's single-family book of business turned over.

"The quality of our new business is high," Frater said. "The pricing of that business does not reflect the capital requirements of our regulatory rule."

The company will report its capital amounts as determined under the revised enterprise regulatory capital framework starting with its first quarter results.

In the fourth quarter, Fannie Mae earned $5.2 billion, compared with $4.8 billion in the third quarter and $4.6 billion in the fourth quarter of 2020.

Its single-family business had full-year net income of $19.1 billion, compared with $9.9 billion for 2020. The segment's fourth quarter net income of $4.2 billion was slightly higher than the third quarter's $4 billion and $3.9 billion one year ago.

Single-family acquisitions totaled $1.4 trillion in 2021, unchanged from 2020. Purchases accounted for $451.3 billion in volume for 2021, the highest on record. Nearly 50% of that total was for first-time homebuyers.

Refinancings totaled $903.7 billion last year, down from a record $947.8 billion in 2020.

On February 10, Freddie Mac reported $1.2 trillion in single-family acquisitions last year.

Given that two-thirds of the loans in Fannie Mae's single-family portfolio were originated in the past two years, and higher interest rates slowing refinance activity, "we expect our book to turn over more slowly, resulting in lower amortization income in future years than we saw in both 2021 and 2020," Halley said.

Fannie Mae's multifamily business earned $3.05 billion for 2021, compared with $1.9 billion in 2020. Fourth quarter segment income was $988 million, up from $817 million in the third quarter and $626 million one year prior.

Fannie Mae expects $3.2 trillion in single-family originations this year, down from $4.5 trillion, Halley said.

"In multifamily, we're estimating market originations of approximately $475 billion relative to the $450 billion expectation for 2021 which was primarily driven by record level property sales," Halley said. "Although we do not anticipate multifamily property sales to remain as elevated in 2022 as they were last year, we still expect continued strong demand driven by a combination of an improving national economy and pent up demand, particularly from the 20-to-34 year old age group, a key demographic for multifamily housing."