Fannie Mae

Good morning, and welcome to the Fannie Mae First Quarter 2022 Financial Results Conference Call. At this time, I will now turn it over to your host, Pete Backell, Fannie Mae's Director of External Communications.

Hello, and thank you all for joining today's conference call to discuss Fannie Mae's First Quarter 2022 Financial Results. Please note this call may include forward-looking statements, including statements about Fannie Mae's expectations related to economic and housing market conditions, their impact on loan performance, and the factors that will affect them, the company's business plans and their impact, and the company's financial results. Future events may turn out to be very different from these statements. The risk factors and forward-looking statements sections in the company's first quarter 2022 Form 10-Q filed today and in its 2021 Form 10-K filed February 15th describe factors that may lead to different results. We ask that you do not record this call for public broadcast and that you do not publish any full transcript. I'd now like to turn the call over to Fannie Mae President and Interim Chief Executive Officer, David C. Benson, and Fannie Mae Chief Financial Officer, Krista C. Halley.

Welcome, and thank you for joining us as we share our 2022 first quarter financial results. I'll provide opening comments, and then our Chief Financial Officer, Krista Halley, will cover our first quarter results in more depth. First, let me just say that I'm very pleased to join this call for the first time in my role as Fannie Mae's president and interim CEO. I've been with the company for almost 20 years, serving in a wide range of positions. Since 2018, I've been president, leading our single-family and multifamily businesses, as well as our corporate functions. But prior to that, I served as our chief financial officer, head of our capital markets team, and before that, as treasurer. Across all of these roles, I've always been impressed by Fannie Mae's depth of talent, our resiliency, and our ability to manage through change. I want to thank our now former CEO, Hugh Frater, for his outstanding leadership and service to the company. Hugh left the company stronger than when he arrived. He was a champion for our housing mission and challenged us to always put the needs of renters and homeowners first. I believe our mission is more important than ever, given today's housing market and the conditions that prevailed in the first quarter of 2022. First, Russia's invasion of Ukraine injected additional disruption into the world economy and financial markets, and it continues to do so. Here in the United States, GDP contracted at an annual pace of 1.4% in the first quarter down from positive growth of 6.9% in the fourth quarter of 2021. At the same time, inflation rose to the highest rate in 40 years. The Federal Reserve raised interest rates for the first time since 2018. Mortgage rates increased by 1.56 percentage points during the first quarter, the fastest increase since 1994. And recently, we've seen rates over 5%. At the same time, home prices continue to rise, growing by 4.6% in the first quarter of 2022. This follows 19.1% growth in 2021 and 10.4% in 2020. For comparison, the average annual growth rate from 2015 through 2019 was 5%. In fact, we believe interest rate increases and consumers' expectations for more hikes down the road pulled demand forward against a limited supply, putting even more upward pressure on prices. In addition, the rise in mortgage rates likely constrained supply even further, making some existing homeowners reluctant to sell their home and shop for a new home with a higher price tag and a more expensive mortgage. Together, these factors put increased pressure on affordability for both renters and homebuyers. Unfortunately for homebuyers, especially those buyers looking for their first home, we don't see any near-term relief from the supportability squeeze. Now, against this backdrop, Fannie Mae continued to perform solidly in the first quarter. We reported $4.4 billion in net income for the quarter, and our net worth rose to $51.8 billion as of March 31st, which bolsters our financial strength by improving our ability to absorb losses in any given quarter. Overall, we supplied $255 billion in liquidity to the single-family and multifamily mortgage markets in the first quarter. This supported $104 billion of single-family home purchase acquisitions, of which nearly 50% were for first-time homebuyers. We also financed 136,000 units of rental housing, a significant majority of which were affordable to families earning at or below 120% of their median income. Now, looking ahead, we expect slower economic growth this year, and we, along with others, see increasing odds of a modest recession in 2023. We believe this will have an impact on housing. Over the next two years, we expect home sales, home prices, and mortgage origination volumes to cool. But importantly, we do not expect a housing downturn of the severity or duration that we saw in 2008. There are important differences. Mortgage credit quality is stronger. Residential real estate and the financial system in general is less leveraged, and mortgage servicers are much better equipped to help struggling homeowners. We also believe that a mild downturn will bring housing demand more in alignment with supply, slow house price appreciation, and modestly improve affordability. Of course, our outlook is affected by factors that are subject to a fair amount of uncertainty, including the pace of Fed tightening, continuing inflation, supply chain and labor challenges, COVID, and the impact of Russia's war against Ukraine. As we move through 2022, Fannie Mae will continue focusing on a few critical priorities. We will focus on continuing to be a steady, reliable source of affordable, sustainable mortgage financing for renters and homeowners. We will focus on managing our risk carefully. We will focus on continuing to develop and diversify our talent at all levels of the organization. And we will continue to take a mission-first approach, knocking down barriers for renters and homeowners. We agree with FHSA's Acting Director Thompson that safety and soundness and access and affordability can and must complement each other. And we're putting this into practice. For example, we recently announced a new pricing incentive for multifamily property owners who accept HUD housing choice vouchers. These vouchers are a vital source of housing support for very low-income families, seniors, historically underserved populations, and people with disabilities. Our goal is to make the rental housing market more inclusive and equitable by expanding the availability of multifamily units that accept these vouchers. Now, another example. We continue to drive for greater lender adoption of the innovation we introduced last year that makes it easier to consider timely rental payments as part of the underwriting decision as a renter seeks to become a first-time homeowner. And a third example, we recently announced that we will require mortgage servicers to suspend foreclosure activities if they are notified that a borrower has applied for assistance under Treasury's Homeowner Assistance Fund. a fund that is designed to help struggling homeowners. These are just a few examples of how we're putting renters and homeowners first. Expect to see more in the months ahead. Now with that, let me hand off to Carissa.