New Report Says 2013 GSE Revenue ‘Will Not be Repeated’

New Report Says 2013 GSE Revenue ‘Will Not be Repeated’

Strong fourth-quarter 2013 earnings by Freddie Mac capped a year of unprecedented financial gains for the government-sponsored enterprises (GSEs), but reflect several one-time items, according to a release issued by Fitch Ratings.

Fitch comments, “While results of the type posted in 2013 will not be repeated, Fitch Ratings expects increased guarantee fees (g-fees) and improving mortgage credit quality to support continued profitability for the GSEs this year.”

The dividends paid by both Fannie and Freddie total $15.4 billion more than total Treasury draws, with no mechanism currently in place to reduce the amount of senior preferred stock outstanding.

The release notes the substantial 2013 revenue brought in by the two companies was not likely to be repeated, due to “significant nonrecurring items related to deferred tax allowance (DTA) valuation reversals, private label RMBS lawsuit settlements, increased representation and warranty settlements, and sizeable decreases in loan loss reserves, which were mainly driven by improvements in the housing market and better asset quality.”

Fitch believes that net income will shrink in 2014, as mandated reductions in GSE on-balance sheet assets will push spread income downwards.

The Treasury is expected to draw more frequently, according to Fitch Ratings, due to the GSE’s capital reserve buffers being reduced.

“The buffers dropped from $3.0 billion in 2013 to $2.4 billion in 2014 for each of the GSEs and will eventually be reduced to zero by 2018,” Fitch said.

The remaining availability under the Treasury agreement for Fannie Mae is $117.6 billion. Freddie Mac’s availability is slightly higher at $140.5 billion.

The release noted that the settlement of legal claims could remain a potential source of earnings in 2014, although lower than earnings from settlements in 2013.

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