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MReport April 2017

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62 | TH E M R EP O RT SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T Fannie Mae Reports Strong Q4 and 2016 Earnings The GSE reports positive net worth of $6.1 billion at the end of 2016. F annie Mae reported an annual net income of $12.3 billion and annual com- prehensive income of $11.7 billion in 2016. Those figures come from the GSE's Q 4 report, in which Fannie Mae also reported a net income of $5 billion and com - prehensive income of $4.9 billion for the fourth quarter of 2016. The company reported a positive net income of $6.1 billion as of the end of 2016, meaning Fannie expected to pay Treasury a $5.5 billion dividend in March. Fannie Mae paid $9.6 billion in dividends to Treasury in 2016. Counting the expected March payment, Fannie Mae will have paid a total of $160 billion in dividends to Treasury. Timothy Mayopoulos, President and CEO of Fannie Mae, said the company's 2016 numbers "reflect a multiyear drive to improve Fannie Mae's business model, strengthen the housing finance system, and deliver innovation and certainty to customers." Fannie also reported $637 bil - lion in mortgage financing last year, stating it was continuing to lay off risk to private capital in the mortgage market and reduce taxpayer risk through its credit risk transfer transactions. At year-end, nearly a quarter of the loans in the company's single- family conventional guaranty book of business, measured by unpaid principal balance, were covered by a credit risk transfer transaction, the report stated. Fannie reported $1.5 billion in credit-related income in 2016, up from $834 million in 2015. Credit- related income in 2016 was driven by a benefit for credit losses "pri - marily resulting from an increase in home prices," the report stated. Fannie's net fair value losses of $1.1 billion in 2016 were down 39 percent from 2015. "We recognized fair value losses for 2016 primarily as a result of a decrease in the fair value of our risk management derivatives in the first half of 2016 due to declines in longer-term swap rates during the period," the report stated. "These losses were partially offset by an increase in the fair value of our risk manage - ment derivatives in the second half of 2016 due to an increase in longer-term swap rates during the period." Fannie's 2016 mortgage port - folio declined by 21 percent to $272.4 billion at the end of Q 4. Its single-family guaranty book of business was $2.8 trillion. Industry Trends Marked in GSE Report The report, using the Fannie Mae loan defect taxonomy, gives insight into loan quality nationwide. A CES Risk Manage- ment (ARMCO) announced the release of the ARMCO Mort- gage QC Industry Trends report for Q 3 2016 on March 1. The re- port, using the Fannie Mae loan defect taxonomy, gives insight into loan quality nationwide. The report shows that the benchmark critical defect rate dropped 1.27 percent during the quarter, reflecting a downward trend in 2016 following a 1.92 per - cent high in Q1 and coming close to Q 4 2016's rate of 1.21 percent. ARMCO's analysis showed that the legal/regulatory/com- pliance category and the loan package documentation category appear as problem areas, with de- fect rates of 38.9 percent and 32.5 percent in Q 3 2016, respectively. Legal/regulatory/compliance defects rose 14.4 percent between Q2 2016 and Q 3 2016. Within the same category, criti- cal defects dropped to a 12-month low and comprised 22.69 percent of all critical defects, an im- provement over Q1 2016 when the legal/regulatory/compliance category comprised 53.23 percent of all critical defects, though it remains the highest category. Loan package documentation, the second-highest category, is a known and continuous problem across the industry, though it rarely affects loan salability. "The findings in the Q 3 Mortgage QC Industry Trends report demonstrate that while the industry as a whole is mak - ing progress in mitigating loan defects, there are still recurring trouble areas that must be ad- dressed," said CEO of ARMCO Avi Naider. "At the same time, as we passed the one-year anniver- sary of the implementation date for TRID, it's fascinating to see a complex picture emerging among our lender base: Essentially, TRID defects still represent a large percentage of overall defects. Yet, lenders are concluding that minor TRID defects do not impact the saleability of their loans based on their experience in the market - place." According to the report, Fannie Mae has guided lenders as to what causes defects and how defects are reported for credit related defects. "The findings in the Q3 Mortgage QC Industry Trends report demonstrate that while the industry as a whole is making progress in mitigating loan defects, there are still recurring trouble areas that must be addressed." —Avi Naider, CEO, ARMCO

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