Fannie Mae and Freddie Mac have and will continue to realize credit losses due to mortgages originated years before the conservatorship when the GSEs were deemed “critical supervisory concerns,” the FHFA stated in its annual Report to Congress.
Since 2008, the GSEs have operated under the FHFA as their conservator and regulator. Treasury supports the GSEs financially through the Senior Preferred Stock Purchase Agreements, which were established when the GSEs entered into the conservatorship out of concerns regarding the companies’ financial health.
In 2011, Fannie and Freddie borrowed $33.6 billion from Treasury, an increase from the year before when $28 billion was drawn. Of the $33.6 billion, $16.1 billion was used to fund dividend payments back to Treasury. The losses leading to the $17.5 billion drawn from Treasury were due to business decisions made by the GSEs in the pre-conservatorship days. Overall, the GSEs have drawn $187.5 billion from Treasury as of the end of 2011.
Losses reported today from the GSEs and projected losses are the result of loans originated from 2005 to 2007.
New single-family guarantees in 2011 were reported to have high credit quality, while higher-risk mortgages have, for the most part, been eliminated.
Mortgages guaranteed in 2011 had average FICO credit scores in the mid-700s, which was roughly 35 to 45 points higher than pre-conservatorship days. Also, the average loan-to-value ratio was at or below 70 percent, which was about 5 percentage points below the levels during pre-conservatorship times.
FHFA reported that the conservatorships of the GSEs and Treasury’s financial support have stabilized Fannie and Freddie, but they are still not restored to a “sound financial condition.”
According to FHFA, key challenges Fannie and Freddie face include “ongoing stress in the nation’s housing markets, the challenging economic environment, and the uncertain future facing the Enterprises.”
The GSEs guaranteed about three out of every four mortgages in 2011, which equals about $100 billion each month in new mortgages.
Since September 2008, Fannie and Freddie have completed more than 2.1 million foreclosure prevention actions.
The report also included an update on FHLBanks, and stated all 12 banks recorded annual profits in 2011, with two reporting losses in individual quarters. The FHLBanks ended 2011 with assets totaling $766.4 billion, down from $878.3 billion in 2010.
Factors which continued to negatively impact the performance of FHLBanks included “declines in advance balances, pay down of higher-yielding investments, and exposure to private-label mortgage-backed securities,” according to FHFA.
While net income decreased slightly in 2011 from the year before, credit-related impairment charges on the banks’ private-label MBS declined in 2011.
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