Mortgage finance giant Fannie Mae (FNMA) Tuesday reported a significant profit for 2012, amid continued improvement in the housing market, and added that it expects earnings to remain strong over the next few years.
''As a result of actions to strengthen its financial performance and continued improvement in the housing market, Fannie Mae's financial results improved significantly in 2012 and the company expects to remain profitable for the foreseeable future,'' the mortgage lender said.
Fannie Mae has determined that the valuation allowance on the company's deferred tax assets of $58.9 billion was still appropriate as of December 31, 2012.
Annual net income was $17.22 billion compared to a loss of $16.86 billion last year. The firm reported net profit attributable to shareholders of $1.4 billion or $0.24 per share compared to a loss of $26.47 billion or $4.61 per share in the prior year.
The company attributed the improvement to better credit results driven by a decline in serious delinquency rates, an increase in home prices, higher sales prices on Fannie Mae-owned properties, and the company's resolution agreements with Bank of America.
Net revenues for the year increased to $22.99 billion from $20.44 billion. Net interest income increased to $21.50 billion from $19.28 billion in the previous year, as lower interest expense mitigated the impact of decreased interest income.
Benefit for credit losses was $852 million compared to a provision of $26.72 billion last year.
The Single-Family business had net income of $6.3 billion, compared with a net loss of $23.9 billion in 2011, due primarily to improvement in the company's credit results.
The Multifamily business had net income of $1.5 billion, significantly higher than $58 million in 2011. The division recorded credit-related income of $187 million in 2012, compared with credit-related expense of $280 million in 2011.
Capital Markets group had net interest income of $13.2 billion for the year, compared with $13.9 billion for 2011. Fair value losses for 2012 were $3 billion compared with $6.6 billion for 2011.
The firm's resolution agreements with Bank of America related to repurchase requests and compensatory fees led to the recognition of $1.3 billion in pre-tax income for 2012. The company also expects to recognize additional net income in the first quarter and in future periods relating to the resolution agreements.
Net income attributable to the company was $7.57 billion in the fourth quarter and net revenues totaled $5.9 billion. In the third quarter, net income attributable to the company was $1.82 billion on net revenues of $5.7 billion.
Timothy Mayopoulos, CEO, said, "Our financial results improved significantly in 2012 and we expect our earnings to remain strong over the next few years. We have taken a number of actions since 2009 to manage our legacy book of business, build a healthy new book of business with responsible underwriting standards, price appropriately for risk, and reduce uncertainty by resolving outstanding issues.''
Fannie Mae completed nearly 40,000 loan modifications during the fourth quarter and around 163,000 for 2012.
For 2012, Fannie Mae paid $11.6 billion in dividends to Treasury under the senior preferred stock purchase agreement. As a result of the company's positive net worth as of December 31, 2012, the company did not request a draw from Treasury for the fourth quarter of 2012.
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