FEDERAL

usiness segment driven by stronger credit quality,
(2) increases in guarantee fee income as a result of
FHFA direction, (3) an increase in home prices
causing a reduction in defaults, and (4) derivative
gains due to an increase in swap rates.
Continued Improvement in Credit Quality
of New Single-Family Business
Fannie Mae’s credit-related income for the six
months ended June 30, 2013, was $6.9 billion,
compared with $772 million for the same period in
2012. 23 Freddie Mac’s credit-related income for the
six months ended June 30, 2013, was $1.2 billion,
compared with credit-related expenses of $2.1 billion
for the same period in 2012. 24 The increase in creditrelated
income is primarily the result of continued
improvements in the credit quality of each enterprise’s
single-family book of business—as higher credit
quality leads to fewer loan delinquencies—and the
increase in national home prices. 25
The enterprises’ single-family books of business consist
of loans purchased and guaranteed that generate
interest and guarantee fee income. The credit quality
of the single-family loans acquired by the enterprises
beginning in 2009 (excluding HARP and other
relief refinance mortgages) is significantly better than
that of those loans acquired from 2005 to 2008, as
measured by loan-to-value (LTV) ratios, FICO scores,
and the proportion of loans underwritten with fully
documented income. 26
This improved credit quality is attributed to:
(1) more stringent credit policies and underwriting
standards, (2) tighter mortgage insurers’ and lenders’
underwriting practices, and (3) fewer purchases of
loans with higher-risk attributes (e.g., Alt-A, interestonly,
credit scores below 620, and LTV ratios above
90%). 27
Further, the enterprises are now holding more loans
with higher credit quality acquired from 2009 to
present in their single-family books of business. As of
June 30, 2013, loans acquired after 2008 comprised
72% and 70%, respectively, of Fannie Mae’s and
Freddie Mac’s books of business. 28 Conversely, the
legacy housing boom loans acquired from 2005
through 2008, which have a higher probability of
credit defects, have declined to 17% of the singlefamily
book of business for Fannie Mae and 19% for
Freddie Mac as of June 30, 2013, compared with 26%
and 28%, respectively, as of June 30, 2012. 29
Increase in Guarantee Fee Prices
A significant source of income for the enterprises
comes from receiving guarantee fees. 30 MBS investors
of both single-family and multifamily loans pay these
fees to gain an enterprise guarantee of the principal
and interest payment. 31 In 2012, FHFA directed
the enterprises to increase their guarantee fees, and
FHFA intends to direct further gradual guarantee
fee increases to achieve several objectives, such as
increasing private-sector investment in mortgage
credit risk. 32 As a result, guarantee fee income
increased for the six months ended June 30, 2013,
with an expectation that future increases will further
augment revenue. Additionally, Fannie Mae’s increase
for the six months ended June 30, 2013, is a result
of liquidating loans with lower guarantee fees while
adding loans with higher guarantee fees to their
multifamily book of business. 33
Fannie Mae’s combined single-family and multifamily
guarantee fee income for the six months ended
June 30, 2013, was $5.5 billion, compared with
$4.4 billion for the same period in 2012—a 26%
increase; Freddie Mac’s combined single-family and
multifamily guarantee fee income for the six months
ended June 30, 2013, was $2.6 billion, compared
with $2.1 billion for the same period in 2012—a 25%
increase. 34
42 Federal Housing Finance Agency Office of Inspector General