The Motley Fool Previous Page

3 Things Every Fannie Mae Investor Should Hear

Patrick Morris
January 5, 2014

Fannie Mae (NASDAQOTCBB: FNMA) recently announced the results of its monthly summary from November, and there are three things investors should take away after the latest release.

1. Delinquencies continue to plummet
For the 34th month in a row, Fannie Mae reported that its serious delinquency rate, which is the percentage of mortgages it anticipates will default, fell. Over the last year, it has fallen from 3.3% to 2.4% and is well below the peak of 5.6% seen in February of 2010. In fact, the reading of 2.4% is the lowest reading since December 2008, when it also stood at 2.4%.

Source: Fannie Mae Monthly Summary.

As you can see in the chart above, while the delinquency rate is nowhere near its peak, the reading is still above the levels seen in 2007 and 2008. However, this serves as an encouraging reminder that the housing market is on the road to recovery after a prolonged downturn.

Things aren't where they have been, or even could be, but the fact that the number of people unable to make their mortgage payment each month continues to decline is undoubtedly a good sign both for Fannie Mae and the American public.

2. Fannie Mae investment portfolio shrinks once more
Fannie Mae began the year with over $633 billion in its gross mortgage portfolio (what it holds for investment purposes), but that number now stands at $496 billion. Although the rate at which it fell declined, from an annualized rate of 23.6% in October -- and as high as 32.4% in July -- to 19.8% in November.

This was driven in large part by an increased number of mortgage sales (up over $60 billion through the first 11 months of 2013 relative to the same period in 2012. Its year-to-date purchases of mortgages and its liquidations (the mortgages that are paid off early or foreclosed upon) are relatively flat when compared to 2012.

Fannie Mae is required to reduce its mortgage assets all the way down to $250 billion as a result of its conservatorship agreement. This affects shareholders because it is no longer able generate as much income on those loans. For example, through the first nine months of the year, its cap