Fannie Mae's single-family acquisitions rebounded following pricing shift

Fannie Mae's single-family home loan acquisitions bounced back from the previous quarter's two-decade low in its latest earnings report, which covered a period in which its regulator engaged in an overhaul of the government-sponsored enterprise's fee structure.

The GSE, which buys a significant portion of the mortgages made in the United States, saw its single-family acquisitions climb back to $89 billion, a level similar to that last seen in the fourth quarter of last year. While that was favorable compared to $68 billion the previous quarter, it also was down considerably from $172 billion a year earlier.

"Despite higher mortgage interest rates quarter over quarter, our single family acquisition volumes increased," Chief Financial Officer Chryssa Halley said during an earnings call.

The development, which was seen during the quarter that included an atypically slow spring homebuying season, raises questions about how or whether the change in the pricing regime opposed by some Republican legislators is affecting Fannie's acquisitions. Fannie and Freddie's regulator had said the risk-based fee changes wouldn't necessarily affect overall volume.

In regards to the pricing change's impacts, CEO Priscilla Almodovar said only in the listen-only earnings call that, "The new construct improved support for traditionally underserved borrowers, while further aligning our pricing model to our capital requirements," in line with its goals.

The acquisition volume shift likely had more to do with conditions in the broader market than the new fee grid, as higher rates in the past year have generally reduced volumes industry-wide compared to that period, and an uptick in home prices suggest some housing did see a muted pick up in the second quarter to the extent that available supply allowed sales.

Because loan volume has improved in some cases in the short-term but is still down considerably from a year ago, Fannie is scrutinizing the soundness of the mortgage companies it works with, Almodovar said. 

"It continues to be a tough market for lender counterparties, something we are monitoring closely," she said.

But Fannie's results were nevertheless strong during the period, with the home price growth driven by supply constraints playing the primary role in boosting loan acquisitions and earnings.

Fannie acquired $76 billion in purchase loans during the second quarter, compared to $57 billion in the first, and $111 billion during 2Q a year ago. Refinancing accounted for the balance of total single-family acquisitions during those periods.

Home price growth also drove a $1.3 billion benefit for credit losses in the second quarter, increasing net income to $5 billion from $3.8 billion the previous fiscal period and $4.7 billion a year earlier.

Fannie Mae's long-term measures of single-family credit performance also improved during the period even though some separate reports on delinquencies in the broader market suggest that there have been some small upticks in the share of borrowers who let payments lapse by 30 to 59 days.  (Fannie has predicted a recession could occur late this year or early next.)

Fannie Mae's single-family serious delinquency rate inched down to 0.55% from 0.59% the previous quarter and 0.81% a year earlier.

Its multifamily SDR is still historically low but inched up to 0.37% from 0.35% the previous fiscal period and 0.34% a year ago. This marks the second consecutive quarterly rise in that serious delinquency rate since it bottomed out at 0.24% in the fourth quarter of 2022.

"The overall credit profile of our multifamily book remains strong, with a weighted average original loan to value ratio of 64% and a weighted average debt service coverage ratio of 2.1 times," said Halley. "However, our multifamily senior housing loans, especially those that are adjustable-rate mortgages, remain stressed."