Federal National Mortgage Association (FNMA) 14 Feb 232022 Q4 Earnings call transcript

Good day, and welcome to the Fannie Mae Fourth Quarter and Full Year 2022 Financial Results Conference Call.

At this time, I will now turn it over to your host, Pete Bakel, Fannie Mae's Director of External Communications.

Hello, and thank you all for joining today's conference call to discuss Fannie Mae's fourth quarter and full year 2022 financial results.

Please note, this call includes forward-looking statements, including statements about Fannie Mae's expectations related to economic and housing market conditions, their impact on our business and financial results and the factors that will affect them, the future performance of the company's book of business, the company's business plans and their impact and the company's financial results and the factors that will affect them. Future events may turn out to be very different from these statements. forward-looking today in lead describe results. and Form company's to Factors filed XX-K factors Risk statements the sections XXXX different The that may

recording publish this call on public broadcast be ask A you you transcript. for call do that website. not that record company's full We posted not do and this of any the may

Halley. Fannie over Executive Officer, Chief now I'd Mae Financial Fannie Chief to like to turn Mae Officer, Chryssa Almodovar the and call Priscilla

for joining call Thank today. and Chief you, our you all Officer. for be earnings Pete, to Chief honored first Executive to here Halley, as us be by glad thank I'm Mae's Chryssa joined Financial Officer. my I'm Fannie

fourth reflect by then on I'll sharing minutes quarter I'll our before on outlook. the calendar perspectives current recapping few a year finally, made on priorities. I And environment our strategic XXXX, XXXX toward for spend our will start economic and progress the our performance

So during in Mortgage factor Higher let rates impact finance XXXX me rates start it rising rise X.XX%, and X.XX% system, was the to mortgage the course serves the XXXX the home directly housing people environment. continue rates mortgage our of and business. end with refinances The the economic XXXX. a at at significant and both in of slowing from purchase ended mortgage prices originations.

of year As a prices, transition. for was XXXX home

highest annual but first the prices Index. in home in home Price X.X% half XX.X% XX%. rate For is prices growth half. single-family by nationally, XXXX, 'XX, the history almost increased of reference, the second Mae's in of grew the during Conversely, Home fell Fannie That

X.X% the estimate year. turned price we momentum XXXX, average in So home prices rose while during

in provision XXXX in in fourth further detail. home this more the full for and quarter. of year to our expectation declines XXXX will Chris to losses in the speak credit Our and price contributed

sales, dramatically. home and housing mortgage saw we Also, originations starts fall

kept has unemployment with low, pace wage inflation. while remained growth housing, not Beyond

to impact and negatively individuals. continue these together, housing families factors Taken affordability,

In higher on face our and assumptions, the than estimates nearly for affordability XX% the mortgage renters at of XXXX. at fact, challenges. XXXX payments were Similarly, of were based end end wood-be homebuyers they

in estimated growth headwinds low why XX% While it's Index Home all-time These fourth of Purchase negative, Only help year an Fannie time buy of to home. growth the remains we quarter near rent believe X.X%. Mae's full October. explain saw set rent January turned respondents a good Sentiment a in its

XXXX. mortgage the impacted Not surprisingly, performed and slowing business our this economic how and quarter demand backdrop in in fourth

provided significantly mortgages, both we purchase year. volumes lower helps markets liquidity last meant refinanced multifamily a refinanced single-family for rented we or While in bought, saw to and home. million X.X single-family households This who approximately business still $XXX the for billion and

homebuyers, of median XXX,XXX financing XXX,XXX of are first-time earning support that for income the We acquired and this rental enabled home more a proud XXX% with XX% purchase majority income families low lower. single-family moderate affordable XXXX loans units significant housing, to and we of or than are representing in

in XXXX, billion $X.X our the providing increased quarter. While fourth with $XX.X This to $XX.X net worth income attributable reported support, billion we billion. of the to net

let of last Now some accomplished year. a highlight step we and take what me back

enhance designed and sustainable Our strategic equitable around our positions. and risk financial were that one, to housing; access updated plan our to efforts by is to core guided improve and two pillars: two,

to with sustainable did some things of and start to the improve me we equitable Let housing. access

consumers. credit-invisible we to the what At reduce call of Fannie we Mae, want number

cost obstacles and reduce want These to affect disproportionately also homeownership. households. We that to underserved historically low income and burdens are moderate

their build pilot. by This credit positive their on-time into incorporating payment introducing renters and allows our profiles. included histories scores rent Some their improve data of our credit payment to actions rent their credit

change groundbreaking mortgage. incorporate our payments one to renters And for the eligible history application of of a qualify helping in a process, rental on-time we mortgage celebrated year

purpose pilot, census we of tracks and with special down costs. credit to addition, program help a first-time black launched which residing payment allows homebuyers a limited serve assistance majority In number closing in who lenders

like our published And the market on shared social environmental, also cost governance of awareness with first-ever report. and corporate, the information securities launching appraisal new We research mortgage-backed and mission-oriented including bias important homeownership, flood housing disclosures topics supply, consumers' risk. company's publishing of we've and investors, on single-family

secure, means positions are This enhance with equally a consistent to mission. support so and earn risk is key technology. housing to investable a and finance that our underwriting second we continue why stable economic our financial we Our liquid market the we strategic financially can our standards sound cycles in and of developed that is company the returns have pillar ensuring all quality That risk core can that and investments foundation manage loan and through we system.

financial of of manage The helped an losses we credit And homeowners mitigation to transfer developed potential risk. effective distress. mortgage credit hardship way loss risk program support to provides times times our in additional tools our manage also in to have

announced designed and over capital our our month, position changes strengthen improve pricing time. to we to Last soundness safety and

strong resilient these of helped build what the our generate to aimed bring. the and continue may financial They better worth. finance and and our investments also housing to results All make system efforts people, continued future prepared to in and us net us help are more for

could before the year-end. The a currently XXXX it economy delinquencies. year, We last enter unemployment resulting the over Chryssa increase in to our half outlook. of in increase thing mortgage I'll recession expect touch the is an modest first by to turning This on in

In will seen we XXXX and lows decline remain believe in but addition, XXXX. the might they above modestly, well mortgage rates

multifamily XXXX to home last quarter. same starts decline X.X% single-family due in further compared prices XXXX to already economic that to decline discussed. and X.X% with compared We the constraints also will time, housing decline we expect forecast the the we At predicted

growth housing the household with time, to growth markets anticipate rent mortgage a we over we normalized XXXX, We the coupled believe of growth in more a XXXX. multifamily, prices over saw recovery. In the home declining income in rates, will, a combination pace in X.X% place term, of lower and compared long

However, by to return our multiple levels pre-pandemic affordability is years. for unlikely to measure,

continue you in as will unfold. with to developments We economy might outlook housing change broader the and how share the market our

to over I would to like that, turn Chryssa. it With

you, future due Priscilla. losses, allowance Good by $X.X loan morning. in net Thank of our a Today, XXXX an of $XX.X price we billion, year-over-year announced increase driven declines. for or largely expected home decrease XX% income billion to

in in since remained strong XXXX. XXXX of XXXX year. the were compared billion revenues second $XX.X to we first reported market described, Priscilla billion saw revenues of declines $XX.X half net in is of quarters the a time net the X.X% in consecutive of single-family observed As the of the beginning churn declines home XXXX. price housing with we at two the This

with guarantee growth Base books, fee to in and fee coupled billion rose due single-family income XX.X% to increase our approximately our family. guarantee average multifamily year-over-year charged in an $XX.X single in

other resulted the In mortgage year-over-year income addition, from higher thanks income billion in prior environment, interest investments our $X which due in increased amortization to to $XXX the $X.X XX% These offset year, decline the and to retained billion by to million portfolios increases prepayment yields. a volumes. from lower rate were increasing

driven $X.X in the XXXX. This XXXX losses was losses provision to concentrated by benefit for part we benefit multifamily recorded $X.X single-family credit in in growth prices. the we We seniors the provision, for XXXX, recorded The is provision housing levels driven forecasted billion large an price to was The record our compared decreases due primarily recorded actual home in year. on where a of credit however, we credit primarily billion portfolio. increase for by a in losses fourth expected that compared to losses home credit of in saw quarter,

quarterly our results. to Turning

billion. in mentioned, losses. quarter. Priscilla Base fee billion, $X.X $X.X of recorded our billion compared billion driven compared the quarter of by revenues the to third guarantee quarter quarter, the fourth quarter-over-quarter decrease an approximately we reported As $X.X allowance in loan for in in at income billion fourth XX% previous $X.X a steady We to net income $X.X remained net increase

the for losses, our $XXX provision a in loans in to hard sector already adjustable reflecting forecasted a that in billion been the mortgage higher and had pressure year senior added recorded rate provision of hit increases the million half housing housing rate further where the in $X.X We inflation. a further market multifamily by credit a family single second portfolio, COVID deterioration and for

expectations our as reflects both business. remains Although on our loan book our our delinquency, future or losses allowance of rates single-family serious on books SDQ, current of multifamily of and year-end, low our

from as XXXX, prior Now a mainly we the billion our single-family increased a decrease single XX last or with XX% credit this provision Starting as loss turn driven basis net compared XX $X.X billion of losses. ratio let by to of segments. points reported points to year, income year. for $XX.X me With in we've our year-end to the of basis coverage provision, for allowance loan of end family,

fourth decreased to Single-family acquisitions $XX environment. in acquisitions interest in from were the in trillion by XX% year-over-year Single-family a to $XXX compared higher rate quarter. XXXX $X.X reduction quarter, XX% XXXX, given billion the billion the third

mark-to-market remain full weighted origination strong, our of score credit average weighted overall of average XX% to single-family XXX. book. the loan-to-value Turning credit a The with and characteristics guarantee at ratio

XXX XX the rate as basis it just pandemic This was the in Our compared low start of to February was as XXXX. basis points of year-end as before single-family SDQ year-end at XXXX, is points. as of

was Lastly, than the of of program. risk record XXXX issuance transferred transfer. a mortgages on a We portion the $XXX credit billion in credit single-family risk more through year

XX% XXXX. single-family from guarantee the efforts, our end year, covered at of result enhancement, a of As our credit the of of book of XX% end last was as up by

million multifamily, the previously account to decrease driven the loan primarily million compared mentioned. quarter or in for $XX housing I takes seniors year, into losses earned million that on a net net of $XXX $X.X was portfolio by for in billion loss In a XX% our income the that XXXX. This provision fourth $XXX we

balance seniors of our year-end and portfolio, billion COVID approximately XXXX overall sharp unpaid had negatively portfolio stress during Our guarantee impacted latter been of put rates $XX.X rate loans inflation. on mortgages. adjustable already pandemic housing A in the by half and interest an additional X% with which principal the of are book multifamily represents this of rise those XX% as of

as as over as allowance acquisition of XX basis were multifamily XXXX, $XXX and build, at from points to of just coverage book year-end our to the XX In the our the prior increased volumes year-end. points billion year. XXXX Given increased loss end billion to multifamily of basis allowance flat of $XX loan for ratio loan multifamily our

affordable that on volume business to multifamily renters market Based focus mission for which be segments forth of income. we underserved area set at required FHFA or at certain our XX% year, on least requirements last and median XXXX less earning our of both least by analysis, met and XX% XX% affordable

credit a multifamily of The of ratio loan-to-value as strong, book of with XX% service average quality our average weighted times. guarantee ratio and X.X whole coverage a weighted debt original remains a

Although remained our and was X.XX% of all a seriously I'll year-end, portfolio are loans X% our we expect XXXX. delinquent at could the whole book seniors of our nearly by low housing level end the rates X.XX% of also of to loss less as covered rise than multifamily as as senior’s of sharing our of multifamily model. loans compared seriously DUS delinquent note SDQ on that

loans our are by transfer credit In of back-end further X/X risk addition, multifamily transactions. about covered

the a of be to $XXX year, with As capitalized. as of the the capital amount of it end needed to to fully undercapitalized capital, remain we billion shortfall relates significantly

Priscilla's I'll home market. on now price declines, Mae. a about pressure forecast our remarks few particularly put of a will the recession Fannie modest impacts continue XXXX factors, to housing on and and expand These to

single-family XXXX to originations activity a decrease expect XX% of from with XXXX from $X.X market purchase We of that XX% come approximately trillion, expected originations.

billion XXXX due property market higher to from volumes decrease to average multifamily to and be that will be multifamily a demand XXXX billion, lending predict from rates that given originations are in and weakening expected on interest XXXX $XXX for between We investors. compared $XXX XXXX

underwriting and our for as XXXX, portfolio. multifamily income acquisition billion. strong, we cycle. volume In management risk interest and thanks steady will to remain confident We revenues Mae's increase is cap fee our practices $XX Fannie investment to other we remain this income move continue in expected through in on base XXXX expect guaranteed

will compared remain driven our we significantly continue will activity lower lens amortization by book expectation with than rates market We income lower that expect our have XXXX, single-family current interest refinancing low significantly most in as also rates. to guarantee anticipate

current to over most In our XXX rate not interest if book, a average fact, of decline approximately than interest end interest X%, be XX-year from will single-family as year, meaningfully loans the of basis Accordingly, XX% the rates of refinance. lower current our rate incentivized levels, of the fixed below points had rate book single-family last mortgage. even an for in

our based Our our differ on could are expectations current many expectations. from materially actual assumptions and results

available As web provides that a business. filing pages today's our into reminder, we a our with on make additional supplement financial insights

With that, it I'll to Priscilla. you, turn back

Thank you, Chryssa.

We will many and will economic to be and for homebuyers expect XXXX continue there that in challenge renters. a affordability housing headwinds remain

cycles. We with also renters Mae to and know you buyers home help the us stability for provide you look throughout that next capabilities liquidity joining We Thank the and Fannie support all dedication and speaking has economic to and today. to forward quarter.

That everyone. you, call. Thank concludes today's

may You disconnect.