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Wednesday, May 09, 2012

Fannie Mae reports $2.7 billion in income, REO inventory declines in Q1 2012

by Calculated Risk on 5/09/2012 10:47:00 AM

This morning Fannie Mae reported results for Q1 2012.

Fannie Mae (FNMA/OTC) today reported net income of $2.7 billion in the first quarter of 2012, compared to a net loss of $6.5 billion in the first quarter of 2011 and a net loss of $2.4 billion in the fourth quarter of 2011. The significant improvement in the company’s financial results in the first quarter of 2012 was due primarily to lower credit-related expenses, resulting from a less significant decline in home prices, a decline in the company’s inventory of single-family realestate owned (“REO”) properties coupled with improved REO sales prices, and lower single-family serious delinquency rates. Fannie Mae does not require funding from Treasury for the first quarter of 2012.
Fannie reported that they acquired 47,700 REO in Q1 (Real Estate Owned via foreclosure or deed-in-lieu) and disposed of 52,071 REO. Fannie has sold more REO than they acquired for six consecutive quarters (acquisitions slowed because of the process issues, but dispositions picked up sharply in 2011).

This has been true for most lenders - they have been selling more REO than they have been acquiring - and the overall REO inventory has been falling.

The following graph shows Fannie REO inventory, acquisitions and dispositions over the last several years.

Fannie REO Click on graph for larger image.

When the red line is above the blue line, dispositions are higher than acquisitions, and REO inventory declines. REO inventory declined by 25% from Q1 2011, and is down 3.7% from last quarter.

A few comments from Fannie:
The ongoing weak economy, as well as high unemployment rates, continues to result in a high level of mortgage loans that transition from delinquent to REO status, either through foreclosure or deed-in-lieu of foreclosure. Our foreclosure rates remain high; however, foreclosure levels were lower than they would have been during the first quarter of 2012 due to delays in the processing of foreclosures caused by continuing foreclosure process issues encountered by our servicers and changing legislative, regulatory and judicial requirements. The delay in foreclosures, as well as an increase in the number of dispositions of REO properties, has resulted in a decrease in the inventory of foreclosed properties since December 31, 2010.
Fannie, Freddie, FHA REOThe second graph shows the combined REO inventory for Fannie, Freddie and the FHA (FHA through Feb 2012).

The combined REO inventory is down to 203 thousand in Q1 2012, down about 18% from Q1 2011.

The pace of REO aquisitions will probably increase following the mortgage servicer settlement (signed off on April 5th); and dispositions will probably increase too.