Fannie Mae First Quarter 2018 Earnings Media Call Remarks

Introduction and Results
Good morning everybody. Thanks for joining us this morning to discuss Fannie Mae's first quarter results. Our results reflect another strong quarter for our business. They are driven by our ongoing actions to make Fannie Mae and housing finance stronger and better prepared to meet the challenges of the future.

We reported pretax income of $5.4 billion for the first quarter, compared to $5 billion for the fourth quarter of 2017, reflecting the strength of our underlying business. In addition, we reported $4.3 billion in net income and $3.9 billion in comprehensive income for the quarter. These compare with a net loss of $6.5 billion and a comprehensive loss of $6.7 billion for the fourth quarter of 2017.

The primary driver in the shift in net income was the one-time negative impact to our fourth quarter results from the Tax Act. As we had said last quarter, that was a one-time event resulting [from] a reduction of the corporate tax rate. Starting this quarter and going forward, we will benefit from this lower rate. The benefit in the first quarter was approximately $700 million.

We also had $1 billion in net fair value gains this quarter primarily due to interest rate increases. Looking ahead, we expect to remain profitable on an annual basis for the foreseeable future. However, as we've discussed in the past, factors such as interest rates and home prices are beyond our control, and fluctuations in these factors make our quarterly results potentially volatile. We expect to pay a $938 million dividend to Treasury in June 2018, and based on our strong first quarter results we will retain $3 billion in capital that should help us weather modest volatility in our results.

Corporate Performance
Beyond these top-line numbers, let me review a few highlights from the quarter. Overall, our quarterly results reflect another solid performance by our Single-Family and Multifamily businesses. We provided approximately $113 billion in liquidity to the single-family mortgage market in the first quarter of 2018, and we were the largest issuer of single-family mortgage-related securities in the secondary market in the first quarter of 2018.

We also continued to transfer a portion of the credit risk on single-family mortgages. Over the past several years we have built a robust, liquid, credit risk transfer program, and our program continues to mature. In the first quarter, we transferred a portion of the risk on $100 billion of mortgages measured in unpaid principal balance at the time of the transaction. The serious delinquency rate of our single-family book was 1.16 percent at the end of March. Last year’s hurricanes are the primary reason our single-family SDQ rate remains higher compared to pre-storm levels. We expect this will continue to be the case for several more months, and after that we expect our SDQ rate will resume its previous downward trend.

In our Multifamily business, we provided more than $11 billion in financing during the first quarter. Our multifamily book continues to grow, our credit experience in the book has been consistently high quality, and lenders share the risk on close to 100 percent of our loans. Through our Multifamily business we continue to be a leader in supporting both affordable and workforce housing. Our financing supported 154,000 units of multifamily housing in the first quarter. More than 90 percent of these were affordable to families earning at or below 120 percent of the area median income. Detailed information regarding the drivers of our [first] quarter results can be found in our press release and quarterly report on Form 10-Q, which we filed today.

Our Focus for 2018
Before taking your questions, let me underscore that our first quarter results flow from a business strategy that we will continue to pursue throughout 2018. The centerpiece of that strategy is our customers. This year, we will continue our drive to provide great service to our customers and to deliver innovative solutions for their most important challenges. With each passing quarter, we are delivering new technologies that are making mortgage lending more simple, certain, and efficient. In April, for example, we've launched a new search tool for our single-family customers. It uses natural language processing and artificial intelligence to make it easier for them to search our selling and servicing policies. It gets smarter the more questions customers ask, and so far we’re getting great feedback from that.

In Multifamily, we are testing ways to let our Delegated Underwriting and Servicing lenders directly integrate their data into our DUS Gateway system using application programming interfaces, or APIs. We're bringing that same innovative approach to areas such as Green Financing, which helps preserve and upgrade affordable rental properties to make them more energy- and water-efficient. Properties that participate in our Green Financing program are projected to save enough energy to power 80 million cell phones for a year and enough water every year to fill 42 billion glasses.

Our Green Financing business started small but in the last two years has become a fairly sizable part of our Multifamily business. It has grown from about $400 million at the end of 2015 to more than $31 billion by the end of 2017. In fact, in March we were recognized by the Climate Bonds Initiative as the largest issuer of green bonds in the world. And in April we received our fourth consecutive ENERGY STAR Partner of the Year award from the Environmental Protection Agency.

All of these solutions build on steps we've already taken, and steps we will take next quarter and the quarter after. Taken together, our innovative solutions are transforming what it is like to be a Fannie Mae customer. In time we believe that they will transform mortgage lending. That's why we are working with customers and FinTech companies to test new technologies, learn what works, and what doesn't. Fannie Mae’s position provides us the opportunity to scale new solutions and to speed their adoption across the industry.

As this evolution continues, it will deliver important benefits to industry stakeholders. It will help drive time and inefficiency out of the mortgage process. It will enable our customers to pass these benefits on and create more opportunities for home buyers and renters. And more broadly, we will be making the system stronger, safer, and more sustainable. So, with today’s filing we’re happy to report that our business is off to a strong start in 2018 and that our aspirations for housing are high. Thank you for joining the call today.