Fannie Mae and Freddie Mac reported a combined 2013 net income of
Drivers of future GSE earnings are shifting as the revenue mix moves increasingly in the direction of g-fees and away from spread income. The g-fees charged on new loans have roughly doubled over the last two years, and solid origination activity will likely increase their importance in future periods. Net interest income, on the other hand, will continue to shrink as mandated reductions in GSE on-balance sheet assets push spread income down.
We believe the likelihood of additional draws from the Treasury will increase over time as the GSE's capital reserve buffers are reduced. The buffers dropped from
The level of private-label RMBS litigation and R&W settlements over recent months has been very high, and we expect the impact of related gains on GSE results to diminish in 2014. Still, a number of outstanding legal claims remain (primarily related to private label RMBS) and the cash impact of future settlements (particularly in the first half of the year) could still be a material source of earnings.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Bill Warlick, +1 312-368-3141
70 W. Madison
Source: Fitch Ratings
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