Remarks Adapted from Comments Delivered by Timothy J. Mayopoulos, President and Chief Executive Officer

Washington, DC

Good morning everyone.  Thanks for joining us today as we share our financial results for the second quarter of 2016.

We had another quarter of solid financial performance.

We are carrying through on actions to strengthen our company; support the housing market; and bring innovation to the market for the benefit of consumers, lenders, and taxpayers.

We also remain a steady, continuous source of mortgage financing to ensure broad access to quality rental housing and predictable long-term mortgages, including the 30-year fixed-rate mortgage.

I am pleased that the underlying fundamentals of our business, including revenues and the credit quality of our book, remain strong.

Because of these strong fundamentals, we expect to remain profitable on an annual basis for the foreseeable future.

As we have said in the past, there are factors that we do not control, such as changes in interest rates and home prices.  These factors can cause significant volatility in our financial results and can have a positive or negative effect in any given quarter.

Once again, we saw some of that volatility this past quarter.  Decreases in longer-term interest rates caused us to experience fair value losses on the derivatives we use to manage risk from interest rate changes.  These losses, however, were less than the fair value losses we experienced in the first quarter.

Summary of 2016 Q2 Results

Let me summarize the primary drivers of our second quarter results and then provide an update on some specific areas of progress.

For the second quarter of 2016, we reported net income of $2.9 billion and comprehensive income of $2.9 billion.

Net and comprehensive income were up from the $1.1 billion in net income and the $936 million in comprehensive income we reported in the first quarter of the year.

The increase in net income in the second quarter was due primarily to lower fair value losses on the derivatives that we use to manage risk from interest rate changes, higher credit-related income, and higher revenues.  The higher revenues were driven primarily by an increase in mortgage prepayments due to refinancings and a seasonal increase in home sales.

Based on our second quarter results, we expect to pay Treasury $2.9 billion in dividends by the end of September.  This will bring total cash dividends paid to Treasury to $151.4 billion, compared with the $116.1 billion we received in support.  As you know, under the terms of our agreement with Treasury, dividend payments do not offset prior draws.

As we have discussed in prior quarters, the amount of our permitted capital reserves declines each year until it reaches zero in 2018.  The natural consequence of this is that future losses, including losses due to factors beyond our control, could lead to a draw from Treasury.

Fannie Mae’s Progress

These second quarter results build on the solid foundation we have laid these past several years to strengthen Fannie Mae and to make our housing finance system more sustainable.  Let me highlight four areas of progress.

First, our improved underwriting standards, which we began implementing in 2008, means that our post-crisis book of business is strong and performing well. 

Our single-family serious delinquency rate, for example, has decreased for 25 consecutive quarters and was 1.32 percent as of June 30, 2016.  This compares to a 5.47 percent rate as of the end of the first quarter of 2010.

Second, we continue to transform our business model by decreasing our reliance on the revenues generated by our retained mortgage portfolio and increasing our reliance on our guaranty fee revenues. 

These are the fees we collect on each mortgage that we guarantee against credit loss and put into our mortgage-backed securities.  These fees are a more reliable and stable source of revenue, and less subject to interest rate and market volatility than those generated by our portfolio.

Third, we also continue to mature our credit risk transfer capabilities, laying off credit risk to private capital where it makes sense.  This decreases exposure for taxpayers and pulls more private capital into the market.

Investors continue to be attracted to these transactions because they understand that we have developed world-class capabilities to assess credit risk, manage loan servicers, and minimize losses.

Through the second quarter, we had transferred a significant portion of the credit risk on more than $660 billion in unpaid principal of mortgage loans.

The fourth area of progress I want to highlight is the innovation we are bringing to the market for the benefit of consumers, lenders, and taxpayers.

Over the course of the past 25 years, technology has transformed almost every industry; some more than once. Until recently, however, applying for a mortgage, closing on a mortgage, and making the monthly mortgage payment looked and felt much like it did in the 1990s.

That is rapidly changing.  Technology is dramatically raising the bar on what consumers expect from the mortgage experience.  Our job is to help our lender partners meet those expectations.

We are working to provide smart tools that give lenders real-time verification of the key components of the credit quality of the loans we acquire.  These tools make it easier to do business with us and provide our customers with more certainty that a loan sold to us will stay sold.

We are also bringing innovations to market to expand access to credit for qualified borrowers.  Years of experience, including the housing crisis, have taught us a lot about how to expand access to credit for creditworthy borrowers in ways that are safe and sustainable. 

We are using those learnings to bring solutions to the market that meet the needs of customers and our customers’ customers.

Finally, in a quarter characterized by a lot of uncertainty in world markets and turmoil on the broader world stage, we continued to serve as a steady, continuous source of financing for quality rental housing and predictable long-term mortgages that constitute the core of our business.

We were the largest provider of liquidity to the mortgage market in the second quarter, providing approximately $145 billion in financing that enabled families to buy, refinance, and rent homes.

More than 75% of our single-family loans are long-term fixed-rate loans, such as the 30-year fixed-rate mortgage we help make possible.

These mortgages remain the mortgage of choice for the vast majority of American homebuyers and homeowners looking to refinance.  They are valued for their certainty and predictability, and because they give homeowners the ability to refinance when it makes sense for them and their families.

Conclusion

In summary, we are continuing to drive improvements and innovations both within Fannie Mae and in the broader market.

These improvements and innovations are bringing real value to taxpayers, to our lender partners, and to consumers.

Most importantly, they strengthen our ability to fulfill our housing mission and support our customers across the nation, through all market conditions.

Thank you and have a good day.