Fannie Mae Profit Falls 81% on Huge Virus-Related Expenses

(Bloomberg) -- Fannie Mae’s first-quarter net income fell 81% to $461 million after it set aside billions of dollars to cover potential credit losses from the coronavirus crisis.

The mortgage giant booked $2.7 billion in credit expenses, triggered by a huge increase in its allowance for loan losses as a result of the economic disruption caused by the pandemic, according to a Friday statement. Fannie said eventual losses from the virus outbreak could be $4.1 billion.

Fannie added that about 7% of the single-family home mortgages it guarantees were in forbearance as of April 30. Congress, as part of March’s $2 trillion virus stimulus bill, allowed borrowers with government-backed loans to delay monthly mortgage payments for up to a year if are facing economic hardships. Fannie estimates that forbearance rates could rise to 15% in its single-family business and to 20% for its multi-family business.

“That is our best estimate as of today based on our expectations for the economy and lockdowns and the types of employment that the borrowers have,” Fannie Chief Financial Officer Celeste Mellet Brown said on a Friday conference call with reporters.

Fannie’s profit for the year-earlier quarter ended in March 2019 was $2.4 billion. Freddie Mac reported Thursday that its first-quarter earnings plunged 88% to $173 million because of coronavirus.

Fannie declined 1.2% to $1.70 in New York trading as of 9:34 a.m., while Freddie fell 2.5% to $1.59. The companies have tumbled almost 50% since Feb. 20, when concerns rose that coronavirus would grind the U.S. economy to a halt.

Fannie Mae Profit Falls 81% on Huge Virus-Related Expenses

Fannie and Freddie, which have been in government control since the 2008 financial crisis, buy mortgages from lenders and then package them into trillions of dollars of securities that are sold to investors with guarantees.

Here are other highlights from Fannie’s results:

  • The company expects the number of loans in forbearance plans will continue to increase.
  • “Due to disruptions in the market and economic uncertainty, the company does not anticipate engaging in back-end credit-risk transfer transactions in the near term,” Fannie said in the statement.
  • Fannie’s net worth, which reflects how much capital it has to protect against losses, slipped to $13.9 billion from $14.6 billion at the end of last year. The company said the decline reflects a change in U.S. accounting rules.

©2020 Bloomberg L.P.

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