Fannie Mae Takes a Big Credit Writedown on Forbearance
The coronavirus crisis has systematically suspended large pockets of the mortgage universe. While private lending is still getting done (albeit at a very reduced level), government-backed lending has returned to being pretty much the only game in town. The Mortgage Bankers Association reported that mortgage credit availability is at a six-year low, which is reminiscent of the aftermath of the financial crisis. So how is the health of the biggest player in the mortgage market, and what does the future look like?
Fannie Mae (OTC: FNMA) reported first-quarter earnings of $461 million, but the main focus is the issue of forbearance, which means borrowers being permitted to skip paying their mortgages for up to a year, pretty much no questions asked. Through the end of April, 7% of Fannie Mae's book of mortgages was in forbearance. Its baseline forecast is that 15% of all its loans will go into some sort of forbearance.
The servicer of the loan will have to cover the first four payments, but after that, Fannie Mae will need to ensure that the holders of mortgage-backed securities (MBS) are paid. That is going to require a lot of cash. In addition, Fannie Mae took a $4.1 billion provision for credit losses between multifamily and single-family mortgages.
Source Fool.com
