Q1 2025 Federal National Mortgage Association Earnings Call
Pete Bakel; Director of External Communications; Federal National Mortgage Association
William Pulte; Chairman of the Board; Federal National Mortgage Association
Priscilla Almodovar; Chief Executive Officer, Director; Federal National Mortgage Association
Chryssa Halley; Chief Financial Officer, Executive Vice President; Federal National Mortgage Association
Operator
Good day, and welcome to the Fannie Mae first-quarter 2025 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.
Pete Bakel
Hello, and thank you all for joining today's conference call to discuss Fannie Mae's first-quarter 2025 financial results. Please note this call includes forward-looking statements, including statements about Fannie Mae's and the Director of the US Federal Housing, FHFA's expectations related to economic and housing market conditions, the future performance of the company's book of business, the company's future financial performance, and the company's business plans and their impact. Future events may turn out to be very different from these statements. The forward-looking statements section in the company's first-quarter 2025 Form 10-Q filed today and in the company's 2024 Form 10-K filed on February 14, 2025, describe factors that may lead to different results. A recording of this call may be posted on the company's website. We ask that you do not record this call for public broadcast and that you do not publish any full transcript. I'd now like to turn the call over to Director of the US Federal Housing, FHFA, and Chairman of the Fannie Mae Board of Directors, William J. Pulte; Fannie Mae President and Chief Executive Officer, Priscilla Almodovar; our Fannie Mae Chief Financial Officer, Chryssa C. Halley.
William Pulte
Thank you. Our current focus at Fannie Mae is on operational efficiency and ensuring that Fannie Mae is a world-class operator. While assets are significant, there remains great opportunity to trim fat, turn the business around, generate more earnings, and do so all while ensuring safety and soundness. A profitable Fannie Mae, one with a strong balance sheet and strong capital focused on delighting customers, means a safe and sound US mortgage market. The operational improvements we are driving at Fannie Mae will turn around the company, and we will make Fannie Mae a great American icon once again.
Priscilla Almodovar
Thank you, Director Pulte. And welcome, all. Thank you for joining us today. We delivered solid results this quarter as we continued our focus on providing liquidity and stability to the nation's housing market. I will start with an overview of the housing environment, then share our financial results and mission performance highlights. After that, our Chief Financial Officer, Chris, Chryssa Halley, will discuss our financial results in more detail. First, the housing environment. The 30-year fixed rate mortgage rate averaged 6.8% during the quarter, slightly up from 6.6% in the last quarter. Total annualized home sales rose slightly to an estimated 4.8 million units in the first quarter, though remained well below the levels seen pre-COVID. Affordability challenges and lock-in effect remain persistent headwinds. High home prices continue to be the primary second point of buyers. Nationally, home prices increased 5.2% for the 12 months ended March 31. Single-Family mortgage market originations were an estimated $378 billion, a 16% increase from the first quarter of 2024. In Multifamily, the national vacancy rate 6% as of March 31, unchanged year-on-year. Rents went up by 0.3% in the first quarter of 2025, and up 1% from a year ago. While Multifamily property values remain down from the peak, they have shown some initial signs of stabilizing. Now, let's dive into our first quarter financial results. We earned $7.1 billion in net revenue and $3.7 billion and net income in first quarter. Our results show a steady revenue stream, mainly driven by guaranteed fee income on our $4.1 trillion book of business. As at the end of the first quarter, we grew our net four to $98 billion, a nearly 20% increase compared to the first quarter a year ago. And since the end of 2022, we have built $41 billion of regulatory capital. In the first quarter, we recognized $931 million in expenses we pay to the US Treasury, HUD, and FHFA for TCCA fees, affordable housing funds, and FHFA assessments. Now, let's talk about how we performed on our housing mission. In the first quarter of 2025, we provided $76 billion of liquidity to support Single-Family and Multifamily mortgage lending. This helped 287,000 households buy, refinance, or rent a home. This included 93,000 units of Multifamily rental housing, most of which are affordable for households earning at or below 120% of area median income. It also included about 74,000 first-time homebuyers. In fact, half of the purchased loans we bought this quarter were for first-time homebuyers. But it's not just about helping people get into homes, it's also about making sure they could stay in it. That's why we also focus on loss mitigation. When borrowers and renters face hardships, we had clear consistent and proven tool that help maintain stable housing. This includes workout options by payment deferral, loan modifications, and repayment claims. Through these options, we help nearly 27,000 borrowers remain in their homes during the quarter. These activities strengthen the communities we serve and make our book more resilient to losses. Our work and the underwriting and servicing standards we set, help attract capital to our mortgage-backed securities. This provides diverse, global, and central liquidity to the US housing market. So to wrap up, we had a solid quarter. Our team is laser-focused on supporting housing affordability and stability of being a reliable source of liquidity. To do this, we're focused on managing our risks, strengthening our profitability, and enhancing how we run the business. We look forward to our continued partnership with the new administration as we work together to tackle housing affordability. With that, I'll turn it over to Chryssa to discuss our first-quarter financial results in more detail.
Chryssa Halley
Thank you, Priscilla, and good morning. As Priscilla mentioned, we reported $3.7 billion of net income in the first quarter, our 29th consecutive quarter of positive earnings. Revenues of $7.1 billion were flat year-over-year. We recorded a $24 million provision for credit losses during the quarter compared to the $180 million benefit we recorded in the first quarter of 2024. Non-interest expense was $2.6 billion compared to $2.3 billion in the first quarter of 2024. Our efficiency ratio, as presented in our financial supplement, was 36.1% for the quarter. Turning to our business activity, our guaranteed book stood at $4.1 trillion as of the end of the quarter. This included $76 billion of new business acquisitions. In Single-Family, we acquired $64 billion in loans this quarter. This was up 3% year-over-year. Acquisitions continued to be needed muted due to the mortgage interest rate environment, housing affordability constraints, and limited supply. Purchased loans made up 78% of our first quarter acquisitions. The credit profile of our Single-Family book remains strong with a weighted average mark-to-market loan-to-value ratio of 50%, and a weighted average credit score at origination of 753. Our strong underwriting and servicing standards help to keep our Single-Family serious delinquency, or SDQ rate, level at 56 basis points as of the end of March, unchanged from December 2024. In Single-Family credit risk transfer, we executed four transactions in the first quarter, transferring a portion of the credit risk on approximately $51 billion of unpaid principal balance at the time the transaction. We paid $429 million in premiums during the quarter on our outstanding Single-Family credit risk transfers. Through primary mortgage insurance and programs such as CAS and CIRT, at the end of the quarter, 47% of our Single-Family book had some form of credit protection. In Multifamily, we acquired $11.8 billion in loans during the quarter compared to $10.1 billion in the first quarter of 2024. Our Multifamily book as of the quarter end had a weighted average original loan-to-value ratio of 63% and a weighted average debt service coverage ratio of 2.0 times. According to the MSCI RCA Commercial Property Price Index, property values declined 18% from their peak in the second quarter of 2022 to the first quarter of 2025, but are down just 1% compared to the first quarter of 2024. Our Multi-family SDQ rate increased to 63 basis points at the end of March compared to 57 basis points as of the end of December 2024. Because of our unique depth risk-sharing model where we share a portion of the credit risk on the Multifamily loans we acquire, coupled with our MCAS and MCIRT programs, essentially all of our Multifamily book had some form of credit protection as of the end of March. At quarter end, we had a $140 billion capital shortfall to our minimum total risk-based capital requirement, excluding buffers, primarily because the $120.8 billion stated value of the senior preferred stock does not qualify as regulatory capital. This shortfall declined by $6 billion compared to the year end, primarily driven by the increase in our retained earnings and the decrease in our risk-weighted assets. More information about our capital rule and progress towards our regulatory capital requirements are in our financial supplement and 10-Q filed today. Lastly, I'll touch on our current economic outlook. Our economist currently expect that mortgage rates will average 6.5% for 2025. Total home sales are expected to improve slightly to 4.9 million units compared to the 4.7 million units seen for the full year of 2024. However, the continued low level of homes available for sale has helped to keep home price growth robust. We currently project year-over-year home price growth will be 4.1% in 2025, as measured by the Fannie Mae Home Price Index, compared to 5.3% in 2024. We forecast Single-Family mortgage originations of about $2.0 trillion in 2025, up from an estimated $1.7 trillion in 2024, with purchases forecasted to make up 73% of Single-Family mortgage originations this year. In Multifamily, we expect rent growth to be in the 2% to 2.5% range in 2025 if job growth continues at its recent pace and home prices remain elevated. Separately, we believe vacancy rates could rise to 6.25% this year, and we forecast Multi-family market originations between $325 billion and $365 billion in 2025, up from $310 billion in 2024. Our expectations are based on many assumptions and our actual results could differ materially from our current expectations. I invite you to visit fanniemae.com, where you'll find a financial supplement with today's filing that provides additional insight into our business. Thank you for joining us today.
Operator
Thank you, everyone. That concludes today's call. You may disconnect.
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