by Calculated Risk on 8/08/2012 10:05:00 AM

From Fannie Mae: Fannie Mae Reports Net Income of $5.1 Billion for Second Quarter 2012

The company’s continued improvement in financial results in the second quarter of 2012 was almost entirely due to credit-related income, resulting primarily from an improvement in home prices, improved sales prices on the company’s real-estate owned (“REO”) properties, and a decline in the company’s single-family serious delinquency rate. The company’s comprehensive income of $5.4 billion in the second quarter of 2012 is sufficient to pay its second-quarter dividend of $2.9 billion to the Department of the Treasury.

These are key points - the improvement was due to 1) an increase in home prices, 2) improved sales prices of REO, and 3) decline in serious delinquency rate.

Here are some more details from the Fannie Mae's SEC filing 10-Q:

The significant improvement in our second quarter results was primarily due to recognition of a benefit for credit losses of $3.0 billion in the second quarter of 2012 compared with a provision for credit losses of $6.5 billion in the second quarter of 2011. This benefit for credit losses was due to a decrease in our total loss reserves driven primarily by an improvement in the profile of our single-family book of business resulting from an increase in actual home prices, including the sales prices of our REO properties. In addition, our single-family serious delinquency rate continued to decline, driven in large part by the quality and growth of our new single-family book of business, our modification efforts and current period foreclosures. Key factors impacting our credit-related results include:

• Home prices increased by 3.2% in the second quarter of 2012 compared with 1.2% in the second quarter of 2011. We historically see seasonal improvement in home prices in the second quarter; however, the home price increase in the second quarter of 2012 was larger than expected and the largest quarterly increase we have seen in the last few years. Higher home prices decrease the likelihood that loans will default and reduce the amount of credit loss on loans that do default.

• Sales prices on dispositions of our REO properties improved in the second quarter of 2012 as a result of strong demand. We received net proceeds from our REO sales equal to 59% of the loans’ unpaid principal balance in the second quarter of 2012, compared with 56% in the first quarter of 2012 and 54% in the second quarter of 2011.

• Our single-family serious delinquency rate declined to 3.53% as of June 30, 2012 from 3.67% as of March 31, 2012 and 4.08% as of June 30, 2011.

Click on graph for larger image.

This graph from the Fannie Mae Second-Quarter Credit Supplement shows the REO sales price divided by the Unpaid Principal Balance (UPB). Fannie is losing less on each REO due to a combination of slightly higher house prices and strong investor demand.

Also, Fannie Mae' REO inventory declined in Q2 to 109,266 houses, the lowest level since 2009. I'll have more REO soon.

by Calculated Risk on 8/08/2012 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from a week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.76 percent from 3.75 percent, with points decreasing to 0.46 from 0.51 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

This graph shows the MBA mortgage purchase index. The purchase index has been mostly moving sideways over the last two years.

There is no evidence in this index of an increase in purchase applications. However the Fed Senior Loan Officer survey showed the opposite, from Nick Timiraos at the WSJ: Home Prices Climb as Supply Dwindles

The Federal Reserve said Monday demand for mortgages to purchase homes jumped during the second quarter by the largest amount in at least three years, according to a survey of bank lending officers.

The following table is from the Senior Loan Officer survey:


Over half the banks surveyed reported moderately to substantially strong demand for mortgage to purchase homes. It isn't clear why the MBA index and the Fed survey results are different.

by Calculated Risk on 8/07/2012 10:10:00 PM

The only economic release scheduled for Wednesday is the weekly MBA mortgage activity index at 7 AM ET.

By request, the monthly contest (on right sidebar and two questions below) uses both Facebook and OpenID logins. More new features soon.

For bloggers, you can contact Ehpik and add your own contest to your site. It is easy to use (people are using it for sports, American Idol and more).

Here are two more questions for August (both on Thursday):

by Calculated Risk on 8/07/2012 08:13:00 PM

If I’m correct about house prices bottoming earlier this year – and the CoreLogic report released this morning is another indicator that prices might be increasing a little - a key question is: What will be the economic impact of slightly increasing house prices?

We saw the impact on Freddie Mac this morning. Freddie reported net income of $3 billion compared to a $2.4 billion loss in Q2 2011. Freddie noted that the decline in its loss provision was due to “improvements in the number of newly impaired loans and to lower estimated future losses due to the positive impact of an increase in national home prices.”

Also I expect CoreLogic and Zillow to report a meaningful decline in the number of homeowners with negative equity in Q2. We might see something like 1 million households that regained a positive equity position at the end of Q2 2012. These are borrowers who might find it easier to refinance, or sell if needed.

We will probably also see a meaningful decline in the number of newer mortgage delinquencies. Note: The MBA Q2 National Delinquency Survey results will be released this Thursday.

Another impact that we've discussed before is the impact on listed “For sale” inventory. Seller psychology is very different if prices are perceived to be falling, as opposed to if prices are stabilizing or even increasing. If potential sellers think prices will fall further, then they will rush to sell and list their homes right away. That behavior pushes up inventory. But if potential sellers think prices are stabilizing, and may increase, then they are more willing to wait until it is more convenient to sell. I think we've been seeing this change in psychology for some time.

And private mortgage lenders and homebuilders will regain confidence in the mortgage and housing market. Flat to rising prices give homebuilders a better idea of the pricing needed to compete in the market - while more consumer confidence in house prices is leading to more demand for new homes. Note: Residential investment is the best leading indicator for the economy, so this pickup in new home sales and housing starts suggests a pickup in the overall economy (barring exogenous events - like the European crisis - or policy mistakes).

In conclusion: There are many positive economic impacts from flat to rising house prices and we are just beginning to see the positive impact on the overall economy.

by Calculated Risk on 8/07/2012 03:30:00 PM

From Tom Lawler:

Freddie Mac reported that its GAAP net income “attributable” to Freddie Mac was $3.020 billion last quarter, up from $577 million in the previous quarter and a net loss of $2.371 billion in the second quarter of 2011. The biggest “swing” factor last quarter was a sharp drop in the provision for credit losses -- $155 million last quarter compared to $1.825 billion in the previous quarter and $2.529 billion in the comparable quarter of last year.

Freddie attributed the sharp drop in its loss provision – which fell far short of charge-offs, resulting in a steep drop in its loan loss reserves – to “improvements in the number of newly impaired loans and to lower estimated future losses due to the positive impact of an increase in national home prices.” Freddie’s internal national home price index, which is based on repeat transactions of homes backed by mortgages owned or guaranteed by Freddie or Fannie with state weights based on Freddie’s SF mortgage book, jumped by 4.8% from March to June, and the June HPI was up about 1.0% from a year ago.

Freddie’s GAAP net income “attributable” to stockholders last quarter was $1.212 billion, reflecting the $1.808 billion in dividends paid to Treasury’s senior preferred stock. Freddie’s GAAP net worth at the end of June was $1.086 billion, and as a result Freddie does not need another Treasury “draw.”

On the SF REO front, Freddie’s SF REO acquisitions last quarter totaled 20,003, down from 23,805 in the previous quarter and 24,788 in the second quarter of last year. Freddie’s SF REO dispositions last quarter totaled 26,069, up from 25,033 in the previous quarter but down from 29,348 in the second quarter of last year. As a result, Freddie’s SF REO inventory at the end of June was 53,271, down from 59,307 at the end of March and 60,599 a year ago.

Freddie attributed the relatively low level of REO acquisitions last quarter to (1) the length of the foreclosure process, especially in states that require a judicial foreclosure process; and (2) resource constraints on foreclosure activities for five large servicers involved in a recent settlement with a coalition of state attorneys general and federal agencies.

Click on graph for larger image.

From CR: The following graph shows REO inventory for Freddie.

REO inventory for Freddie decreased in Q2. After Fannie announces results I'll post a graph of REO for the F's (Fannie, Freddie, and the FHA). FHA REO increased in Q2 to 40,217 from 35,613 in Q1.