Fannie Mae’s net income dropped 90 percent in the first quarter of 2020 as credit expenses piled up as the coronavirus pandemic shook the economy beginning in mid-March.
Net income dropped from $4.4 billion in the fourth quarter of 2019 to $461 million in the first quarter of 2020 – with more challenges on the horizon due to a growing number of borrowers taking advantage of forbearance.
Fannie increased its allowance for loan losses to reflect the losses it currently expects to incur, including $4.1 billion as a result of the economic disruption caused by the COVID-19 outbreak, which are reflected in its $2.7 billion of credit-related expenses for the quarter.
Fannie Mae estimates that 7 percent of its single-family loans were in forbearance as of April 30. “The company expects the number of loans in forbearance plans will continue to increase,” the company said in a statement.
The $2 trillion CARES Act includes a moratorium on foreclosures and the right to forbearance on federally backed mortgages. Forbearance allows borrowers to put off payments for at least six months if they suffer economic hardship during the pandemic.
Last month, the Federal Housing Finance Agency announced that mortgage lenders will only have to cover four months of missed payments from borrowers under forbearance during the coronavirus pandemic. The change applies to all mortgage lenders managing Freddie Mac or Fannie Mae backed loans.
Fannie Mae’s net worth declined from $14.6 billion at the end of 2019 to $13.9 billion as of March 31. Although the company had comprehensive income for the first quarter of 2020, its net worth declined as a result of a $1.1 billion charge to retained earnings due to implementation of the Current Expected Credit Loss standard on January 1.