Fannie Mae Fourth Quarter and Full-Year 2024 Financial Results Conference Call
Fannie Mae Moderator:
Good day, and welcome to the Fannie Mae Fourth Quarter and Full-Year 2024 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 fourth quarter and full-year 2024 financial results. Please note this call includes forward-looking statements, including statements about Fannie Mae's expectations related to economic and housing market conditions; the future performance of the company's book of business; and the company's business plans and their impact. Future events may turn out to be very different from these statements.
The "Risk Factors" and "Forward-Looking Statements" sections in the company's 2024 Form 10-K, filed today, 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 We ask that you do not record this call for public broadcast, and that you do not publish any full transcript.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 Fannie Mae President and Chief Executive Officer Priscilla Almodovar and Fannie Mae Chief Financial Officer Chryssa C. Halley.
Priscilla Almodovar:
Welcome, and thank you for joining us. I'll begin by summarizing economic conditions in 2024 before moving on to our financial results and mission impact. After that, our Chief Financial Officer, Chryssa Halley, will discuss our results in more detail.
Macroeconomic Conditions
First, the economy. In 2024, consumer spending was steady, unemployment remained low, and job growth was healthy. Inflation, however, remained stubborn, particularly in housing. The 30-year mortgage rate averaged 6.7% during the year, slightly lower than 2023, but much higher than the historically low mortgage rates borrowers could get just a few years ago. These low mortgage rates led to the "lock-in effect," meaning many homeowners sat tight in their homes and fewer homes were available for sale. In fact, existing home sales in 2024 were near 30-year lows.
While the inventory of overall homes increased in some areas, nationally, supply did not keep pace with demand. As a result, single-family home prices in 2024 grew by an estimated 5.8%, compared to 5.5% in 2023. Given these factors, housing affordability remains a real challenge. According to our most recent Home Purchase Sentiment Index®, just over one in five consumers believe it is a "good time" to buy a home. In the overall mortgage market, single-family originations increased to an estimated $1.7 trillion, from $1.5 trillion in 2023.
Multifamily mortgage market originations were an estimated $295 billion in 2024, up from $246 billion in 2023. While multifamily supply increased nationally, in some areas it continued to be constrained. The new supply that did come online was absorbed, with multifamily vacancy rates holding steady at 6% compared to year-end 2023. Rents grew only an estimated 1% for the year, and property values continued to decline, but at a slower pace than the prior year.
Financial Results
Now, let's turn to our financial results. We earned $17.0 billion in net income in 2024, compared to $17.4 billion in 2023. Our fourth quarter net income was $4.1 billion, marking our 28th quarter of consecutive, positive earnings.
Our revenues continued to be driven by guaranty fee income. This is consistent with the change we made to our business model well over a decade ago to move to a guaranty-driven business while repurposing and reducing our retained mortgage portfolio.
As of the end of the year, we grew our net worth to nearly $95 billion, further increasing our financial stability. And, over the past two years, we have built nearly $37 billion of regulatory capital.
Mission Impact
We delivered strong financial results while staying focused on our mission. In 2024, Fannie Mae provided $381 billion of liquidity to the single-family and multifamily markets. This essential work helped approximately 1.4 million households buy, refinance, or rent a home. This helped 391,000 first-time homebuyers to buy a home. It also included about 420,000 units of multifamily rental housing, most of which are affordable for households earning at or below 120% of area median income.
As I mentioned earlier, housing affordability is tough for many consumers. By our estimates, from 2010 – 2023, median home prices rose about 102%, but incomes only rose about 64%. While Fannie Mae does not control many of the factors impacting affordability, we are committed to working with our partners in housing to tackle this challenge. For instance, we continued our work to reduce key obstacles that many consumers face, such as a limited credit history and high up-front costs. This includes innovative ideas that fit within our existing credit eligibility guidelines.
We're creatively using our role in the capital markets to support our mission through our Single-Family Mission Index™ disclosures, which help interested mortgage-backed security investors allocate their capital in support of affordable housing. Further, we continue to offer a full suite of loss mitigation options to support homeowners facing hardship. We believe these actions make the housing finance system, and our book of business, stronger.
Wrap Up
2024 was another year of progress for Fannie Mae. We continued to deliver strong earnings while carrying out our mission and being a reliable source of liquidity for the nation's housing market. As we head into 2025, we remain focused on our strengths — adapting to and meeting the needs of the market and serving America's homeowners and renters safely and soundly. We're able to play our essential role in housing thanks to the good work of our team over many years to transform our business model, enhance how we manage risks, and strengthen our finances.
Now, I'll turn it to Chryssa to share more about our 2024 annual and fourth quarter results.
Chryssa C. Halley:
Full-Year and Fourth Quarter Results
Thank you, Priscilla, and good morning. As Priscilla mentioned, we reported $17 billion of net income in 2024, down $430 million from 2023. Net revenues remained strong at $29 billion, thanks to healthy guaranty fee income of $23 billion. Non-interest expenses were $9.8 billion, relatively flat to 2023. We recorded a $186 million benefit for credit losses in 2024. This lower benefit compared to 2023 was the primary driver of our decrease in net income.
The single-family benefit for credit losses was $938 million, due mainly to a continuation of longer-term improvements in our home price forecast. The multifamily provision increased by $257 million to $752 million, because of an incremental decline in property values, rising delinquencies, and the ongoing investigation of lending transactions with suspected fraud. We expect multifamily property values to stabilize in 2025, as I will discuss more in a moment.
Turning to the fourth quarter, we reported $4.1 billion of net income, compared to $4.0 billion in the third quarter. This was primarily due to an increase in fair value gains, partially offset by a shift to provision for credit losses. Our single-family provision for credit losses in the fourth quarter was mostly driven by higher interest rates relative to the prior quarter. This was slightly offset by a multifamily benefit mainly due to improved projections for net operating income and property values.
Now, let me turn to our segments.
Single-Family Results
Starting with Single-Family, we reported $14.4 billion in net income in 2024, a decrease of $425 million compared to 2023. Net interest income was relatively flat year-over-year. While we saw higher base guaranty fee income, deferred guaranty fee income continued to be muted. The year-over-year change in our single-family net income was primarily driven by the lower benefit for credit losses mentioned in our overall results. We acquired $326 billion in single-family loans last year, a 3% increase compared to 2023 due to slightly higher refinancing activity. The credit profile of our overall single-family book remained strong as of year-end, 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 helped to keep our single-family serious delinquency, or SDQ, rate near historically low levels, at 56 basis points at the end of December. This is compared to 55 basis points at the end of 2023 and 52 basis points at the end of the third quarter. These increases were driven by increased delinquencies in areas affected by hurricanes.
In Single-Family credit risk transfer, we executed several transactions last year, transferring a portion of the credit risk on approximately $186 billion of unpaid principal balance at the time of the transactions. We paid approximately $1.5 billion in premiums during the year on our outstanding single-family credit risk transfers.
Through primary mortgage insurance and programs such as CAS and CIRT™, at the end of the year, 46% of our single-family book had some form of credit enhancement.
Multifamily Results
Turning to Multifamily, we reported $2.5 billion in net income in 2024, consistent with 2023. Compared to 2023, we reported a $74 million increase in net interest income due mainly to higher guaranty fee income from book growth, partially offset by lower average charged guaranty fees and the impact of lower yield maintenance income from fewer prepayments. However, our provision for credit losses increased $257 million year-over-year, as mentioned in our overall results.
According to the most recent data from the MSCI RCA Commercial Property Price Index, property values declined 19% from the peak in the second quarter of 2022 to the fourth quarter of 2024. However, the pace of decline has been slowing throughout 2024 and continued to slow in the fourth quarter. While we expect property values to stabilize in 2025, our multifamily allowance reflects some uncertainty for property value projections.
Our multifamily SDQ rate increased to 57 basis points at the end of 2024, compared to 46 basis points at the end of 2023. The year-over-year increase was primarily due to a portfolio of approximately $600 million of ARM loans that became seriously delinquent during the third quarter of the year.
Multifamily lending transactions involving fraud or suspected fraud further heightened the risk of default and added to our multifamily credit loss provision. The higher provision year-over-year was partially offset by a $211 million increase in expected credit enhancement recoveries, mainly due to the loss-sharing arrangements we have with our DUS® lenders.
We acquired approximately $55 billion in multifamily loans last year, up 4% from 2023, reflecting increased market activity in the fourth quarter. Our overall Multifamily book as of year-end had a weighted-average original loan-to-value ratio of 63% and a weighted-average debt service coverage ratio of 2.0 times.
In Multifamily credit risk transfer, we executed 3 transactions, transferring a portion of the credit risk on approximately $26 billion of unpaid principal balance at the time of the transactions.
Because of our unique DUS risk-sharing model, whereby 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 enhancement.
Capital
Turning to capital, as Priscilla mentioned, we have nearly $95 billion of net worth, and over the past two years, we have built $37 billion of regulatory capital, meaningfully reducing our regulatory capital deficit. We remain focused on building capital and continuing our progress towards meeting our capital requirements.
We have a $146 billion capital shortfall to our minimum total risk-based capital requirement today primarily because the $120.8 billion stated value of the senior preferred stock does not qualify as regulatory capital. More information about our capital rule and progress towards our regulatory capital requirements are in our financial supplement and 10-K filed today.
Outlook
Lastly, I'll share our current economic outlook. Given inflation measures have remained stickier than markets expected earlier last year, our economists do not expect a meaningful decline in the 10-year Treasury rate in 2025. As a result, mortgage rates are expected to remain elevated, at above 6%, and we predict home sales will remain suppressed. Existing home sales are expected to total 4.15 million units in 2025, an improvement over the approximately 4 million units in existing home sales in 2024, but still down more than 20% compared to 2019. We anticipate new home sales will remain strong in 2025, expecting an annualized sales pace of 738,000 units, as builders seek to respond to housing demand.
While the continued lack of inventory for homes available for sale has helped to keep home price growth strong, we expect home price growth to decelerate in 2025. We currently project year-over-year home price growth will be 3.5% in 2025 as measured by the Fannie Mae Home Price Index, compared to 5.8% in 2024. We anticipate home price growth in 2025 will be slower than the rate of household income growth, helping to gradually improve affordability for homebuyers.
We forecast single-family mortgage originations of about $1.9 trillion in 2025, up from an estimated $1.7 trillion in 2024, with purchases forecasted to make up 74% of single-family mortgage originations this year.
Longer-term demographic trends remain supportive of multifamily construction over the next decade as the prime renter-aged population is expected to continue to grow. We expect rent growth to be in the 2% to 2.5% range in 2025, and vacancy rates to be between 6% and 6.25%. And, we forecast multifamily market originations between $330 billion and $375 billion in 2025.
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 our financial supplement and our 2024 10-K filed today that provides additional insights into our business. Thank you for joining us today.
Fannie Mae Moderator:
Thank you, everyone. That concludes today’s call. You may disconnect.
