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Fannie Mae First Quarter 2020 Earnings Media Call Remarks

May 1, 2020
Adapted from Comments Delivered by Hugh R. Frater, Chief Executive Officer, and Celeste Mellet Brown, Executive Vice President and Chief Financial Officer, Fannie Mae, Washington, DC

Hugh R. Frater:

Good morning and thank you for joining today's call to discuss Fannie Mae's first quarter results.

As we all know, this is an extraordinary time for our country, for the housing market, and of course, for our company.

Today, we will discuss what Fannie Mae is doing to help the nation work through the impact of the COVID-19 pandemic, how it affected our results in the quarter, and – provisionally – what it means for us going forward.

I'll kick us off with some introductory remarks.

Then our CFO Celeste Brown will take us through our outlook with respect to COVID-19 and its effects on our economy and our book, as well as the key drivers of our business in the first quarter.

As I look back to the start of this crisis – and then look ahead to what it will mean for Fannie Mae and the market we serve – there is one crucial takeaway.

This is a "mission moment" for Fannie Mae.

Many of you are no doubt listening to this call from your home office – one point this pandemic clearly reinforces is the centrality of housing to both our lives and, we have now learned, to our employment. Doing everything we can to keep people in their homes is essential.

Recognizing the importance of housing, Fannie Mae was chartered by the federal government in the wake of the Great Depression to stabilize the housing finance market during times of financial stress and economic upheaval.

We were created to provide liquidity to mortgage lenders, large and small, in good times – and especially in tough times.

This is such a time.

We entered this crisis from a position of relative strength. For the better part of the last decade, we have been reorienting our business model, improving our credit risk management, reducing reliance on portfolio earnings, enhancing our management depth, and hardening our resiliency programs.

So, as the crisis took hold in March, Fannie Mae was prepared.

I'm glad to report that thus far, these preparations have allowed us to focus on what is most important now, and in the months to come.

  • And that is helping the housing market, our customers, and America's homeowners and renters through the ongoing social and economic damage being wrought by COVID-19.
  • We are doing our part to provide what shelter we can from this invisible storm – and to provide also for the eventual recovery that will follow.

Our first focus was to ensure the safety of our people and the continued, uninterrupted operation of our secondary market functions.

We instituted a full telework program for our employees on March 16. Since that time, effectively all of our Single-Family, Multifamily, and Capital Markets operations have been conducted virtually.

Our goal, of course, was to protect our people and the communities we serve.

And our people have adapted remarkably well, managing the stress not only of working remotely from home, but meeting the extraordinary demands and volatility of the mortgage market for our customers and mortgage-backed securities investors during this time.

I am extremely proud of our team.

In the first quarter, we provided over $200 billion in liquidity to the mortgage market, including over $80 billion in March alone.

Our ability to provide funding for community lenders was particularly resilient, and our whole loan conduit executed more than $40 billion in volume in March, mostly for small lenders.

But I must emphasize that we expect it will be a difficult road ahead, not only for Fannie Mae and its financial performance, but, more importantly, for people whose homes are at risk because of the impact of the pandemic.

Millions of homeowners and renters need assistance until livelihoods can be resumed. Our Single-Family servicing partners, as well as our lender customers in both Single-Family and Multifamily, will face demands unlike any they have seen since the 2008 financial crisis.

Fannie Mae is committed to fulfilling its vital role in helping our customers, our servicers, and the market as a whole manage through this period of uncertainty and stress.

We initiated efforts to assist homeowners and renters on March 18, issuing guidance for our lenders and servicers on our mortgage forbearance options.

Our rough estimate is that more than 1 million forbearance plans on Fannie Mae single-family loans have been put in place so far. And that number is likely to grow.

We issued guidance allowing our Multifamily lenders to grant forbearance for up to three months if the borrower is experiencing hardship due to the impact of COVID-19.

Importantly, in order to receive this forbearance, Multifamily borrowers must agree to suspend evictions of tenants for nonpayment of rent.

We have also ramped up our outreach and educational efforts, including updating and refreshing our website. This website has quickly become a go-to resource for borrowers in need of information and assistance and has had close to 1 million unique page views since the much welcome CARES Act was enacted a little over a month ago.

In addition, we activated our Disaster Response Network, which offers homeowners and renters in Fannie Mae-financed Multifamily properties support from HUD-approved housing counselors, including personalized recovery assessments and financial coaching.

Let me hit on a few final points before turning it over to Celeste.

First, our ability to respond now is a direct result of the strengths and capabilities we have built over the past decade, working hand-in-hand with our regulator, FHFA.

We have a varied and stress-tested toolkit for helping borrowers facing hardship – one that did not exist in 2008.

We have years of experience in working with servicers to help them help struggling borrowers.

And, as Celeste will describe, the credit quality of our book is stronger than in 2008.

Second, on the liquidity front, as I said, in the last six weeks we have successfully provided liquidity for large volumes of originations.

Our ability to fund our secondary market operations has been sound.

Finally, I want to underscore that we are fully committed to working with our regulator and our industry partners as we see our collective way through this trying time.

It is sometimes said that people are at their best when things are at their worst. And, in that spirit, I want to give special thanks to the people of Fannie Mae, who have stepped up to this mission moment with grit and humility, and, above all else, with a determination to help our customers help their customers – the struggling homeowners and renters who have been hit hard by this crisis.

With that, I'll turn it over to Celeste, who will take us through the quarter's results.

Celeste Mellet Brown:

Thank you, Hugh, and good morning everyone.

Given the current situation, we are changing our approach to describing our results this quarter and will start off by discussing our economic outlook and the financial impact of COVID-19 on our business. I'll then review our business highlights for the quarter.

Economic Outlook

The COVID-19 pandemic has driven a sudden and dramatic change in the economy, as people have changed their behaviors and spending habits to avoid exposure, while many businesses have furloughed or laid off workers. After considering many scenarios, our economists believe that the most plausible scenario is one in which the annualized Q1 GDP decline of 4.8% is followed by a more severe annualized decline of around 25% in the second quarter. Despite a forecasted rebound in the second half of the year, we expect full-year 2020 GDP to fall approximately 3% and bounce back in 2021 to approximately 5% growth. We expect the unemployment rate to average 12% in the second quarter of 2020, with a peak of close to 15%, before ending 2020 around 7%.

These estimates are based on our assumption that economic activity will begin to restart in June as social distancing measures and mandated shutdowns are eased. There is inherent uncertainty in our forecast, given the uncertainty around the severity and duration of the pandemic. For example, a one-month delay in a pick-up in economic activity could result in a 35-40% annualized decline in GDP for the second quarter, and 5-8% for the year, while the average unemployment rate for 2Q could be closer to 15%.

Amid the uncertainty of COVID-19, Treasury rates plunged in the first quarter, reaching record lows. Mortgage rates followed more slowly, with widening spreads primarily due to lender capacity constraints in the face of large refinance volumes. We expect Treasury rates to stay below 100 basis points and mortgage rates to stay near current low levels through the end of the year.

Turning to housing, our proprietary Home Purchase Sentiment Index, or HPSI, fell 11.7 points in March, the largest single-month decline in the survey’s history. While the housing market was in a strong position in the beginning of the year, we now expect total home sales to decline by more than 30% in the second quarter as people shift their behavior to avoid exposure. As people hold off purchasing homes in light of the uncertainties surrounding the effects of the virus and the economy, we also expect home construction to decline. We expect single-family housing starts to fall sharply in the second quarter, with full-year housing starts declining by nearly 8%.

As a result of our lower home sales forecast, we have decreased our estimate of 2020 single-family purchase originations. At the same time, we have increased our refinance origination forecast due to the lower rate environment; we expect the boost in refinance volume to drive total originations up by nearly 10% in 2020 versus 2019.

Given our economic outlook and the slowdown in housing activity, we believe home prices in 2020 will be relatively flat, a significant decrease from our prior estimate of over 4% growth. Because we believe home price growth was positive in the first quarter, our forecast implies declines for the rest of the year.

On the Multifamily side, while we expect a modest rise in vacancy and lower or possibly negative rent growth, we believe multifamily assets will generally perform better than other commercial real estate assets. Given the uncertain employment environment, as well as eviction moratoriums imposed by the CARES Act and in some cases by local municipalities, we expect most tenants to stay in place.


As Hugh said, we are committed to helping borrowers, and are taking action to help Americans manage the impact of the pandemic, including providing forbearance to single-family and multifamily borrowers with COVID-19-related financial hardships. I'd like to take some time to talk about how forbearance affects our financials, and the implications to our retained portfolio, liquidity position and conservatorship capital.

First, our financials and projections include the benefit of the recent accounting relief provided for troubled debt restructurings, or TDRs, by the CARES Act and interagency banking guidance.

While we estimate that approximately 7% of loans in our single-family book have taken forbearance so far, our allowance in the quarter reflects uptake of 15%. Uptake could be higher if economic conditions are worse than our forecast. On the multifamily side, only a small number of properties have thus far opted into a forbearance agreement, though our allowance estimate reflects a much higher uptake of 20%. I'd like to caveat that the current and projected forbearance numbers are preliminary and are likely to change as we evaluate new data over the coming months.

When a single-family loan enters forbearance, the borrower may temporarily stop making their principal and interest, or P&I, payments without incurring any penalties. When a borrower misses a P&I payment, for the majority of our loans, servicers advance the P&I payment to MBS investors for the first 4 months. After 4 months, we will advance P&I payments to MBS investors. This approach is now consistent across the GSEs. In addition, we will reimburse servicers for payments they have made when a loan exits forbearance.

For single-family loans, there are several outcomes for loans once the forbearance period ends. If the borrower is able to begin paying their mortgage again, the servicer will initially either:

  • Set up a repayment plan; or
  • Allow the borrower to defer payment.

In these cases, the loan stays in the MBS trust, which is beneficial to us from a liquidity perspective, as we do not need to fund a buyout.

If these options do not work for the borrower, then the loan is modified to maintain or reduce the borrower's monthly mortgage payment. If none of these options work, then the loan may default. In cases where the loan is modified or the loan defaults, we will likely need to buy the impacted loan out of the MBS trust.

Loans entering forbearance affect our financials in several ways.

The largest immediate impact, which we saw in the first quarter, was to credit-related expense. Under CECL, which we implemented in the first quarter, we are required to set aside reserves for lifetime expected credit losses based on a reasonable and supportable approach. In a few moments, I'll explain in more detail how we developed the estimated impact of COVID-19 on our allowance.  But first, I'd like to explain how forbearance affects net interest income, our retained portfolio, our liquidity position and capital.

First, impacts to net interest income:

In accordance with interagency banking guidance recently issued in response to COVID-19, we may elect to modify our policy to increase the number of months for which we can accrue interest income on loans in forbearance, which would reduce the typically negative effect of our nonaccrual policy on interest income. However, it is important to note that while we may be able to continue to recognize interest income, we would also need to assess our accrued interest receivables for collectability. This means that we may need to book an allowance against the receivable in the second quarter.

In addition, because we are issuing debt to finance P&I payments to MBS investors and potentially to purchase loans out of trust, we will incur additional interest expense, which further reduces our net interest income.

Second, the impact to our retained portfolio.

We use our retained portfolio primarily to provide liquidity to the mortgage market, through buying whole loans from small- and medium-sized lenders, and to support our loss mitigation activities. At the end of the first quarter, our retained portfolio balance fell to $151 billion from $154 billion the previous quarter, well below the current FHFA limit of $225 billion.

However, due to the impact of COVID-19, we see a couple of emerging trends that may result in our retained portfolio balance increasing.

First, as we seek to provide liquidity, and other market participants have pulled back from the market, we have become an even more important liquidity provider. This increased volume has caused our Whole Loan Conduit to grow.

Second, as some modified or defaulted loans need to be purchased out of MBS trusts, in future periods our loss mitigation portfolio is likely to grow.

The size of our Whole Loan Conduit and the potential volume of loans that may need to be purchased out of trust could result in our needing to request FHFA and Treasury’s consent to increase our current retained portfolio and debt limits.

Third, let me touch on liquidity.

To fund Whole Loan Conduit purchasing needs, expected P&I advances to lenders and increases in MBS buyout activity, we have been increasing our Other Investments Portfolio. The balance climbed to $133 billion at the end of the first quarter, up from $74 billion in December of 2019.

Fourth, let me address the impacts of COVID on conservatorship capital.

We continue to expect that FHFA will re-propose the Enterprise Capital Requirements later this quarter. It is possible that some of the impacts I describe may no longer apply, or be as substantial, under the new capital rule. That said, under the rule that currently applies to us, our conservatorship capital is likely to substantially increase as a result of the COVID-19 crisis.

Loans in forbearance will carry a higher capital charge:

Loans that miss even one payment are flagged as nonperforming and have a significantly higher capital rate under the conservatorship capital framework: as an example, credit risk capital increases by over five times with even one missed payment on a single-family loan.

When loans exit forbearance and complete modification trials, they are considered reperforming. While credit risk capital charges for modified, reperforming single-family loans are lower than for nonperforming loans, they could still drive a substantial increase in our capital requirements for an extended period of time.

Additionally, nonperforming and reperforming loans we buy out of trust will incur a 4.75% additional market risk charge.

Another item affecting conservatorship capital is CRT. Our credit risk transfer programs enable us to transfer some of the risk on the loans that we acquire. The recent economic turbulence and uncertainty limits our ability to issue new CRT transactions in the near term, which is consistent with what we have modeled in our stress testing. If current conditions continue for an extended period, it will limit future benefits to our financials and capital position.

If home prices decline, our capital requirements will increase due to the procyclicality in the current capital framework, although home prices consumed for the conservator capital framework are lagged by two quarters. Thus, home price changes in Q2 2020 would affect conservatorship capital in Q4 2020. A 1% home price change in FHFA’s model equates to a 5-basis-point capital change, or roughly a $1.5 billion increase or decrease to our capital requirement.

First Quarter Allowance Adjustment

I'll turn now to how we estimated the allowance impact of COVID-19 in the first quarter. To estimate losses associated with forbearance, we considered employment risks and a state lockdown analysis, and then layered in assumptions on the possible outcomes once the forbearance period ends. We used information gleaned from historical large-scale forbearance periods, such as the 2017 hurricanes. Based on this analysis, we estimated the percentages of loans in our Single-Family and Multifamily books that we expect will enter forbearance, which are 15% and 20%, respectively, as I mentioned previously. Our estimate also reflects the adoption of the TDR accounting relief provided for in the CARES Act.

Of the Single-Family loans entering forbearance, we estimated the percentage of loans that would self-cure, modify, or enter foreclosure.

For Multifamily loans entering forbearance, we estimated that the vast majority of borrowers would begin paying after the 3-month forbearance period, and that loans would not need to be modified. Borrowers would be expected to make up missed payments over the next 12 months.

For the first quarter, the impacts of the COVID-19 pandemic drove an allowance increase of $4.1 billion, which accounts for the expected effects of forbearance, as well as for the reduction in our 2020 home price forecast that I mentioned previously.

If it turns out that more loans enter forbearance than we estimated, or if the outcomes of the loans at the end of forbearance are more adverse than we expect, this would also increase our allowance, as our expectation of credit losses would increase. In addition, worse home price or multifamily property value expectations would increase the allowance.

Because of the actions we have taken to strengthen the company during conservatorship, our book is in far better shape than it was at the beginning of the financial crisis.

Since that time, we have improved our underwriting and credit risk management. As a result, our book has a much stronger credit profile. For instance, at the end of 2019, the weighted average mark-to-market loan-to-value ratio for the single-family book was 57%, compared with 70% in 2008. And the percentage of loans with mark-to-market loan-to-value ratios above 100% has decreased from 12% at the end of 2008 to 0.3% at the end of 2019, which underscores that the proportion of loans on our book that present the greatest default risk has substantially decreased.

For Multifamily, the book had an average debt service coverage ratio, or DSCR, of approximately 2.0x at the end of 2019, meaning that net operating income of Multifamily properties was approximately double the debt service requirement. If net operating income on the book hypothetically decreased by 20% on average, the share of the book with coverage below 1.0x would only increase from 2% to 6%, thereby granting better assurance that borrowers would continue to pay. Further, even in cases where multifamily loans may default, our Delegated Underwriting and Servicing program, or DUS program, provides that our lender partners will share in approximately one-third of the credit losses, reducing the impact to us.

As a result of our improved underwriting, our book of business now has a stronger credit profile. In addition to having a stronger book to withstand the crisis, we have well established loss mitigation programs, $13.9 billion of capital as of the end of Q1 2020 to cushion against potential losses, and $113.9 billion in remaining funding under the senior preferred stock purchase agreement with Treasury.

First Quarter Financial Highlights

Now I'd like to turn to the first quarter financials in brief.

In the quarter, we earned comprehensive income of $476 million, down $3.8 billion from the fourth quarter, largely due to a switch from credit-related income in the fourth quarter to credit-related expense in the first. In total, the switch to credit-related expense drove a $2.8 billion reduction in pretax earnings, which reflects the aforementioned $4.1 billion allowance increase to account for expected COVID-19 associated losses, as well as partially offsetting beneficial interest rate impacts. Also contributing to the quarter-over-quarter reduction in income was a shift from investment gains in the fourth quarter to losses in the first. Investment losses in the first quarter were mainly due to a decrease in the fair value of our single-family loans held-for-sale. In the fourth quarter, we had investment gains primarily due to reperforming loan sales.

As a result of a $1.1 billion one-time charge to our retained earnings associated with the implementation of CECL, less the amount of our earnings this quarter, our net worth fell to $13.9 billion at the end of the first quarter from $14.6 billion in the fourth.


Turning to the Single-Family business, the segment earned net income of $68 million in the first quarter, which is down from $3.8 billion in the fourth, driven primarily by the same factors that drove our overall results. For the Single-Family business, credit-related income in the fourth quarter switched to expense in the first quarter, driving a $2.4 billion pretax change, which reflects a $3.4 billion impact from COVID-19-related adjustments, partially offset by the beneficial interest rate impact.

Our market share of single-family mortgage loans securitized by the GSEs was 59%, compared to 57% in the fourth quarter.

Single-family acquisitions of $191 billion in the first quarter were similar to those in the fourth. Overall, refinance volumes increased by $6 billion due to declining mortgage rates, partially offset by reduced purchase volumes. Our average single-family conventional guaranty book of business grew by $18 billion quarter-over-quarter, while the serious delinquency rate remained flat at 66 basis points. Our SDQ rate does not yet reflect the impact of the pandemic.


For Multifamily, our net income of $393 million decreased by roughly $150 million versus the fourth quarter, driven primarily by credit-related expense associated with the impact of COVID-19 in the first quarter.

The average multifamily book was up by over 2% in the quarter and 10% year-over-year, and the book remained strong from a credit perspective. The serious delinquency rate increased slightly to 5 basis points at the end of the first quarter from 4 in the fourth, while the substandard rate also remained historically low at 2.2%. As is the case with Single-Family, our multifamily SDQ and substandard rates do not yet reflect the impact of the pandemic.

Our share of multifamily GSE mortgage acquisitions increased to 59% in the first quarter from 51% in the fourth. Multifamily volume in Q1 was $14 billion, bringing our total acquisition volume under the FHFA's five-quarter volume cap to $32 billion, and leaving $68 billion in capacity under the cap through the end of 2020.

Conservator Capital

Our capital requirement under FHFA's conservatorship capital framework was approximately $83 billion in the first quarter, down from $84 billion in the fourth.

Closing Remarks

I expect that next quarter we will again be discussing the impact of COVID-19 on our financials, and we will start to see additional impacts on our business. For the first quarter, the impact to our financials is largely based on management judgment, and by next quarter, we will have more data points to consider and will re-evaluate our economic outlook, as well as our assumptions regarding forbearance and our loan loss allowance.

I'll now turn it back over to Hugh.

Hugh R. Frater:

Thank you, Celeste.

Before we go to questions, I want to reiterate that much work lies ahead to help borrowers, renters, and the housing market recover.

But the market will recover – eventually.

It won't be easy, especially for homeowners and renters experiencing loss of income. Nor will it be easy for the lenders and mortgage servicers who will be on the front lines helping them.

For our part, it is Fannie Mae's mission to provide leadership, promote practical solutions, and ensure that the mortgage market is liquid and stable enough to keep mortgage credit flowing to households. And all of us here at Fannie Mae are committed to playing that role to our fullest.

Together, we'll get through this and come out stronger, as our country always does.

Thank you for joining us today.


I'll now open the call for questions that pertain only to the earnings statements just released. There will be no Q&A on any other topics. Thank you.

Our first question will come from Bonnie Sinnock with Arizent.

Bonnie Sinnock:

Hi, thank you for taking my question. There were three things I wondered if I could ask you about. One was about the credit risk transfer, the back-end credit risk transfer transactions. It looked like, or if I was hearing right, those would be suspended for this time or some kind of reduction in those.

I just want to clarify, CECL has been delayed for some of the entities, but I suppose you're not one of the entities that can delay it, is that why you're still recording that?

And then I didn't know if you could talk me through the mechanism through how payments will work after the four months when the servicers stop advancing.

Celeste Mellet Brown:

Hi Bonnie, nice to hear from you. First, on the credit risk transfer side, yes, currently we are not issuing credit risk transfer. Our expectation has always been that in periods of great economic and housing market uncertainty we would not be able to issue these. And we'll see how these things go once there is more clarity in the economy and more clarity more broadly. But at this point, we're not attempting to issue anything. But we'll keep you posted on that.

Second, as it relates to CECL, we did adopt CECL this quarter. There was not relief provided for us in the CARES Act or any other bills. But there is actually a benefit to CECL. To the extent that you believe that you have visibility into recoveries, you can reflect that in CECL. So, because at this point we expect the impact to be shorter-lived than some of the things we saw in prior periods, both the impact of the forbearance but also the likelihood that many of these borrowers, we hope, will be able to get back on track, and to start paying their mortgages again, either with a repayment plan at the time or with payments deferred to a later date on the payments that were missed.

On your last question, I'm not quite sure I understood it. I believe it was the mechanism for servicers. At four months, we begin advancing the P&I to the trust, and then when the forbearance period ends we will reimburse the servicers. So, for example, if someone has forbearance for six months, after four the servicers would stop advancing and we would begin advancing for two months, and then at the end of that six-month period, assuming the borrower is out of forbearance, the servicers would be repaid for the four months that they advanced.

Bonnie Sinnock:

OK, thank you. And just one point on the CRTs that I'm thinking that means that the issue is when you have a period of great uncertainty in the housing market it would be hard to create a market for those. That's how I read that, but tell me if that's wrong. 

Celeste Mellet Brown:

Yes, that's true. That's the case in a lot of the markets right now. There's great uncertainty. In some cases, you see in the corporate credit markets, for example, people are borrowing but it costs them a lot more. So, we are in a position where we have quite a bit of CRT and loss mitigation coverage in place, and at some point we hope to be back in those markets. But the CRT securities are similar to lots of other things out there, where people just need to have a better sense for what's going to happen in the future.


Our next question will come from Andrew Ackerman with the Wall Street Journal.

Andrew Ackerman:

Hi, thanks for doing the call. The increased allowance for loan losses, the $4.1 billion figure, is that basically your best guess as to how many loans already in forbearance will eventually become delinquent? And is that at all tied to the implementation of CECL, that large figure?

Celeste Mellet Brown:

Hi Andrew. I couldn't quite hear the second part of your question, but the allowance reflects a few things. One, of the $4.1 billion that we took for COVID-19, about $1 billion of that reflects the impact of our reduced home price outlook, and then the balance is based on our assumptions for forbearance. So, as I mentioned during the call and I think as Hugh mentioned, there are over a million single-family loans, or about 7% of our book, in forbearance we estimate today. We're using numbers from servicers, so it's not as precise a number as we would normally have. Our estimate is that 15% of our single-family book and 20% of our multifamily book would go into forbearance, and that's based on a number of things including where the loans are, the type of employment, state lockdowns, etc. So, a doubling basically of what we're seeing so far.

Andrew Ackerman:

Ok, that's helpful. The other thing, do you have a sense of how much debt you will have to issue once you begin taking over advances on forborne loans in a few months?

Celeste Mellet Brown:

Yes, we have estimates around that. The numbers I've seen out there for the industry as a whole are large, but for us they are very manageable, particularly given the amount of debt that we have and will continue to be able to issue. But they're not nearly as big as some of the numbers that you've seen out there for the industry as a whole.

Andrew Ackerman:

Ok. And I'm sorry, just to go back to the doubling of forbearance, is that your projection, or you're just trying to be conservative and husbanding your resources, I guess?

Celeste Mellet Brown:

Well, the accountants would say you cannot be conservative, you have to have your best estimate. So that is our best estimate as of today based on our expectations for the economy and lockdowns and based on the types of employment that some of the borrowers have. So, 15% at the moment is our best estimate for single-family of where we think forbearance will land.


Our next question will come from Dennis Hollier with Inside Mortgage Finance.

Dennis Hollier:

Hi, thanks for taking my call. I'm curious about what would the impact have been on the CECL charge if you had been fully doing hedge accounting?

Celeste Mellet Brown:

It was a little bit hard for me to hear you, but I believe you asked what the impact of CECL would have been if we had been doing hedge accounting. There wouldn't have been a discernible impact on CECL from hedge accounting. It would have reduced the volatility of some of the mark-to-market lines on our income statement, but I don't have the estimates in front of me of what that benefit would have been.

Dennis Hollier:

Has the crisis created an incentive to move to hedge accounting?

Celeste Mellet Brown:

We have been working very diligently on hedge accounting. If anything, we expect that our initial expectation of implementation for later this year will likely move slightly to the first quarter of next year as we are focused quite a bit on the work we need to do for borrowers and servicers at the moment. But, hedge accounting is an important tool in any period, but in particular if we do need to increase the size of our retained portfolio as it relates to buyouts and also because of the size of the conduit, it will become an even more important tool for us to be able to manage any potential earnings volatility.


At this time, I see no further questions in the queue. I would like to turn it back over to Fannie Mae Chief Executive Officer, Hugh R. Frater.

Hugh R. Frater:

Thank you, everyone, for joining the call today. Thanks for your time.


Ladies and gentlemen, that does conclude our call for today. Thank you for your participation. You may now disconnect.

Fannie Mae's May 1, 2020 media call includes forward-looking statements, including statements relating to: the company's response to the COVID-19 pandemic and its effects; economic and housing market conditions; the company's future financial and business results and its future financial condition and capital requirements; the credit quality and performance of its book; the company's expectations for future debt issuances and credit risk transfer transactions; and the company's expectations regarding implementing hedge accounting and its impact. Actual results and events, and future projections, may turn out to be very different from these statements. Factors that may lead to different results are discussed in “Risk Factors,” “Forward-Looking Statements,” and elsewhere in the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and its Annual Report on Form 10-K for the year ended December 31, 2019. The company's forward-looking statements speak only as of the date they are made, and the company undertakes no obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under the federal securities laws.