Net interest income (NII) for both companies declined as their balance sheets continued to shrink. Freddie Mac's NII declined 7.2% from the prior quarter and approximately 18% from 1Q'13. The decline in Fannie Mae's NII was more modest at 2.3% on a linked-quarter basis and 25% year-over-year. Fitch expects the downward trend in core profitability to persist for the remainder of the year, despite higher guaranty fees charged on new business, which are included in NII.
Single-family business volumes fell sharply, as refinancing activity stalled further amid higher interest rates. During the first quarter, Fannie and Freddie reported a combined decline in new MBS issuance of 30% and 63%, compared to the linked quarter and 1Q'13, respectively. A decrease in business volumes does not have an immediate impact on GSEs' profitability.
Profits were bolstered by a number of large settlements with financial institutions pertaining to private-label securities. In aggregate, settlements represented
Additional information is available at 'www.fitchratings.com'.
Source: Fitch Ratings
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