On Wednesday, Fannie Mae [1] released its Q4 2017 financial statement [2], and as expected, the GSE posted major losses for the quarter. It also posted an annual revenue in 2017 that was nearly $10 billion down from 2016.
By the end of Q4, Fannie posted a drop of $3.7 billion in overall net worth and a loss of $6.5 billion. The GSE's net income in 2017 was $2.5 billion, down from $12.3 billion the year before. Pre-tax, however, those numbers work out to $18.4 billion in 2017, compared to $18.3 billion in 2016.
In a statement, Fannie President and CEO Timothy Mayopoulos said, “Our 2017 results demonstrate that the fundamentals of our business are strong. While the fourth quarter was affected by a one-time accounting charge, we expect to benefit from a lower tax rate going forward.”
Mayopoulos' optimism aside, Fannie still has nearly $4 billion to make up, and the agency is expected to ask for government assistance for the first time since 2012.
Bloomberg [3] reported Wednesday that Fanie's shortfall is the “unintended but anticipated side effect of the corporate tax cut signed into law in December.” What that refers to is a drop in the value of the GSE's assets, which became less valuable—and, therefore, less able to offset taxes—when Congress cut the corporate tax rate, “resulting in a $9.9 billion hit.”
That's almost exactly the amount Fannie dropped in net income last year.
Mayopoulos told Bloomberg that he believed investors in the company’s mortgage bonds won’t be surprised by the draw of public funds.
“Anybody who’s been paying attention to the situation has been entirely aware that this draw was likely,” Mayopoulos told Bloomberg.
In reality, Fannie's business, Mayopoulos said, is essentially stable. According to its Q4 statement, an agreement Fannie made with the Treasury [4] in December increased the applicable capital reserve amount to $3 billion as of January 1 and reduced the dividend amount otherwise payable for the fourth quarter of 2017 by $2.4 billion.
Fannie Mae also reported providing approximately $570 billion in liquidity to the mortgage market in 2017 and said it was the largest issuer of single-family mortgage-related securities in the secondary market in the fourth quarter and full year of 2017.
The company’s estimated market share of new single-family mortgage-related securities issuances was 39 percent for the full year of 2017 and 37 percent for Q4 2017.
“Our focus is on building a strong, stable housing finance system for the future,” Mayopoulos said. “We are doing this by delivering innovative solutions for our customers and demonstrating leadership on our country’s most persistent housing challenges.”
He did not specify what those solutions would be.