Net earnings fall
By MortgageDaily.com staff
1/16/2003

Fannie Mae announced 2002 totals and fourth quarter results Wednesday, showing off plenty of increases -- except in net income, where the mortgage giant took a fall.

Fannie reported $952.2 million in net income during the fourth quarter, a slight dip from third quarter's $994.3 million.

Net income took a greater hit when compared year-to-year, however. It totaled $4.6 billion in 2002, a 21.6% decrease from 2001's year-end total of almost $5.9 billion.

That year-to-year decrease is because of $4.5 billion in mark-to-market losses, on a pre-tax basis, in the time value of purchased options -- interest rate "swaptions" and interest rate caps, Fannie said.

For the fourth quarter, Fannie reported $304.5 billion in business volume, which is the mortgages purchased for portfolio and issued mortgage-backed securities (MBS) acquired by other investors. The fourth quarter total represents a 63.0% jump from the third quarter's $186.8 billion, and a 64.0% leap from the $185.2 billion during fourth quarter 2001.

The mortgage giant's gross mortgage portfolio came in at $790.8 billion during the fourth quarter. This is a 5.2% increase from third quarter's $751.4 billion and an almost 11.9% increase from fourth quarter 2001's $707 billion.

Fannie's book of business totaled $1.820 trillion, an increase from third quarter's $1.742 trillion and from fourth quarter 2001's $1.564 trillion.

Net operating income during the fourth quarter totaled almost $1.7 billion, compared with the third quarter's $1.6 billion.

"Fannie Mae's disciplined risk management in the fast-growing market of residential mortgage finance has enabled us to achieve a record of growth and consistency of earnings over the past decade and a half that is without equal in financial services," CEO Franklin D. Raines said.

With the exception of net income, the government-sponsored enterprise reported swollen figures for 2002.

Fannie's business volume reached a record $848.9 billion by the end of the year. This represents an almost 38.0% increase from 2001's total of $615.3 billion. Business volume in 2002 consisted of $370.6 billion in portfolio purchases and $478.3 billion in MBS issues acquired by investors other than those in Fannie's portfolio.

Retained commitments to purchase mortgages totaled $388.1 billion in 2002, an almost 31% increase from the $296.5 billion total in 2001. This was a result of lower interest rates and a related increase in mortgage refinancings, Fannie reported.

Fannie's combined book of business, which is the gross balance of mortgages held in portfolio and outstanding MBS held by other investors, ended the year at $1.820 trillion. It grew at a compound annual rate of 16.4% during 2002, Fannie said.

Net operating income for 2002 totaled almost $6.4 billion, compared with the almost $5.4 billion total of 2001.

On a monthly note, Fannie reported its portfolio duration gap at -5 for December, compared with November's +2.

In spite of volatile interest rates, the duration gap on the company's mortgage portfolio remained within its preferred range for all but three months of the year, Raines said.

Dubbed its "Seventh Voluntary Initiative," Fannie will voluntarily register its common stock with the Securities and Exchange Commission this year. This will permanently require the company to file its financial disclosures with the commission under the Securities Exchange Act of 1934, the company reported in December.

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