Fannie Mae Stock Soars As Mortgage Delinquencies Decline

Fannie Mae’s recently released Monthly Summary reports that serious loan delinquencies decreased slightly in January.  A single family home mortgage loan classified as “seriously delinquent” is three or more months past due or in the process of foreclosure.  A multifamily mortgage loan is considered seriously delinquent when payments are 60 days or more past due.

The serous delinquency rate in January 2013 dropped to 3.18% from 3.29% in the previous month.  The delinquency rate has declined significantly from the January 2012 rate of 3.9%.  The delinquency rate on Fannie’s portfolio of multifamily mortgages decreased in January to 0.35% from 0.52% in the comparable prior year month.

Fannie Mae’s total book of business decreased in January at a compound annualized rate of 1.8% in January to $3.185 trillion, up slightly from the January 2012 total of $3.181 trillion.

Fannie’s overall delinquency rate is still triple what would be expected in normal times for conforming mortgage loans but the trend is extremely encouraging, especially when considering that the delinquency rate was as high as 5.5% in early 2010.


A more stable economy and increases in the values of single family homes have been two of the primary factors driving a stabilization in mortgage delinquency rates.  Last week, Freddie Mac reported the largest annual profits in history based on decreased delinquencies and improvement in the housing market.

The primary business of both Fannie Mae and Freddie Mac is to guarantee the payment of principal and interest on single family home mortgages that they buy from banks.  The mortgages are securitized into “agency securities” and sold to investors.   The portfolios of both agencies total over $5 trillion dollars.

The shares of Fannie and Freddie which both trade over the counter have been rising recently based on their improving financial condition.  Shares of Fannie Mae (FNMA) rose by over 9% today to $0.32 but remain far below the price of $65 reached in 2007.  Shares of Freddie Mac rose by over 14% today but also remain far below the $60 price range achieved in 2007.

The ultimate fate of Fannie and Freddie, both currently under government conservatorship, remains in the hands of Congress and the administration.  One factor that may bode well for investors in Fannie and Freddie is the fact that the U.S. Treasury owns 80% of both agencies.  A recovery in the share prices of Fannie and Freddie could potentially wind up yielding huge profits to the U.S. Treasury.

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