By Paul Muolo
Fannie Mae and Freddie Mac - wards of the federal government for over nine years now - are poised to report stellar earnings for the third quarter, likely blowing past results of the prior two periods, according to an analysis by Inside MBS & ABS.
Not only did the two government-sponsored enterprises benefit from a strong origination market in the third quarter, and robust guarantee fee income, but a previously announced legal settlement with Royal Bank of Scotland will soon hit the books.
And there's one other kicker: the yield on the benchmark 10-year Treasury increased slightly to 2.33 percent at Sept. 30 compared to 2.30 percent at midyear, which means the two likely will not incur any hedging marks that dampen profits. In past periods, when rates go down, hedges lose value.
According to new figures compiled by Inside MBS & ABS, Fannie and Freddie issued a total of $223.6 billion of residential MBS during the third quarter, their best showing of the year. On a sequential basis, issuance increased 17.9 percent.
During the first quarter, the GSEs posted net earnings of $5.0 billion, followed by $4.9 billion in the second. For the full story, see Inside MBS & ABS, now available online.