Wednesday, 23 January, 2019

Fannie Mae reports $6.5B loss for fourth-quarter 2017

Fannie Mae reports $6.5B loss for fourth-quarter 2017 Fannie Mae reports $6.5B loss for fourth-quarter 2017
Nellie Chapman | 16 February, 2018, 07:21

Freddie Mac pegged its dismal fourth quarter performance to a $5.4 billion write-down of the net deferred tax asset.

Despite taking a loss in its final quarter, Fannie Mae benefitted from improvements in the housing market - the home-price index increased 5.6 percent in the fourth quarter.

Fannie Mae has a line of credit with the Treasury Department, and even after taking out $3.7 billion, it would still have $113.9 billion remaining on its credit line.

The Treasury Department and the FHA eased those restrictions in 2017, allowing the agencies to hold $3 billion in capital stores to guard against potential losses.

The new tax law is forcing Fannie Mae to seek a cash infusion from the U.S. Treasury for the first time since 2012.

Fannie Mae had warned in its third-quarter 10-Q that "if legislation significantly lowering the USA corporate income tax rate is enacted, we expect to incur a significant net loss and net worth deficit".

Fannie Mae saw net income of $2.5 billion in 2017, compared with $12.3 billion in 2016, according to its quarterly report. With the lower tax rate, deferred tax assets are now worth less, resulting in a wave of accounting losses in corporate America since the law went into effect. The company insisted that its fourth quarter comprehensive income was $2.1 billion without the write-down.

The writedown "was an expected, one-time outcome of the tax bill and is not a reflection of our underlying business, which remains strong", Fannie Mae CEO Timothy Mayopoulos said.

The tax law enacted in December reduced the corporate tax rate and forced Fannie Mae to take on a one-time accounting charge that needs to be offset with the requested money, The Wall Street Journal reported. The company said it expects the FHFA to request $312 million from the Treasury. During the Mortgage Bankers Association's Convention & Expo, he indicated that the situation with the draw-down of the GSEs' capital buffers was dire.

Watt - and the entire mortgage industry - has been pushing Congress to adopt housing finance reform that would release the GSEs from government control, going so far as to call conservatorship "unsustainable".

However, the single-family business is more profitable when combined with Freddie's capital market business, "which is highly profitable", Layton said in an interview.

"Our focus is on building a strong, stable housing finance system for the future", Mayopoulos said.