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60 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET THE LATEST First Quarter net income nearly doubles for Freddie mac The government-sponsored enterprise raked in a robust $524 million during Q1 2015. F reddie Mac's net income for the first quarter of 2015 totaled $524 million, nearly double the total of a profitable but somewhat slow fourth quarter, according to Freddie Mac's Q1 2015 Finan- cial Report. Derivative losses were largely responsible for dropping Freddie Mac's net income by nearly $2 billion from Q 3 to Q 4 down to $227 million, but the GSE responded by nearly doubling that net income total in Q1 to $524 million. It marked the 14th consecutive quarter of profitabil- ity for Freddie Mac. In Q1, derivative losses declined to $2.4 billion, down from $3.4 billion the previous quarter. About $1.8 billion of Q1's derivative losses were related to fair value charges, according to Freddie Mac. Fannie mae reports net income of $1.9 Billion Lower fair value losses helped bump up the GSes' first-quarter earnings by nearly 50 percent. F annie Mae reported a net income of $1.9 billion for the first quarter of 2015, up from $1.3 billion from the previous quarter, ac- cording to Fannie Mae's Q1 2015 financial results. The primary driver of the nearly 50 percent quarter-over-quarter increase in net income was lower fair value losses for Q1, according to Fannie Mae's announcement. Fair value losses totaled $1.9 billion for Q1, compared to $2.5 billion for Q 4 2014, primarily due to smaller declines in longer-term interest rates that negatively impact Fannie Mae's risk management derivatives. Fannie Mae's comprehensive income for Q1 was reported at $1.8 billion, up from $1.3 billion in Q 4. The Enterprise reported a net worth of $3.6 billion as of the end of Q1, resulted in a payment of $1.8 billion to the Department of Treasury last month per the terms of a 2012 amendment to the 2008 bailout agreement. All told, Fannie Mae has paid $138.2 billion in dividends to Treasury—about $22.1 billion more than the $116.1 billion bail- out Fannie Mae received from taxpayers in 2008 to continue operations. "This was another quarter of strong financial performance. We continued to have solid revenues. While we experienced some interest rate volatility again this quarter, we expect to remain prof- itable on an annual basis for the foreseeable future," said Timothy J. Mayopoulos, president and CEO of Fannie Mae. "We con- tinued to make progress against our goals, and we are manag- ing the company on a basis that produces good economic value for the taxpayer. We are focused on delivering value to our business partners and making it simpler and easier for lenders to serve the housing market safely, efficiently, and profitably." Other highlights of Fannie Mae's Q1 financial reports include 34,000 workout solutions to homeowners to avoid foreclosure or retain their homes during the quarter and $124 billion in liquidity to the mortgage market, enabling families to buy, refinance, or rent homes. In that same week, Fannie Mae's fellow GSE, Freddie Mac, reported a net income of $524 million for Q1, up from $227 the previous quarter. Q1 was the 14th consecutive quarter of profitability for Freddie Mac. Both GSEs returned to profit- ability in 2012, four years after their combined $187.5 billion bailout from taxpayers, and they have been profitable ever since. Some analysts have recently questioned their ability to remain profitable; however, the results of a stress test released in May by the GSEs' conservator, the Federal Housing Finance Agency (FHFA), showed that Fannie and Freddie would likely need a bailout of up to $157 billion when certain hypothetical adverse economic conditions were applied. "Fannie Mae expects to remain profitable on an annual basis for the foreseeable future; however, the company expects its earn- ings in 2015 and future years will be substantially lower than its earnings for 2014, due primarily to the company's expectation of substantially lower income from resolution agreements, continued declines in net interest income from its retained mortgage portfolio assets, and lower credit- related income," Fannie Mae said in its report. "In addition, certain factors, such as changes in inter- est rates or home prices, could result in significant volatility in the company's financial results from quarter to quarter or year to year." Other factors that will affect Fannie Mae's profitability in the future include guaranty fee rates, single-family mortgage origination volume, and the size, composi- tion, and quality of its mortgage portfolio and book of business, in addition to economic and housing market conditions, according to Fannie Mae.