Fannie Mae

Good day and welcome to the Fannie Mae second 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 second quarter 2022 financial results. Please note this call includes forward-looking statements, including statements about Fannie Mae's expectations related to economic and housing market conditions and their impact on our business and financial results and the factors that will affect them, the company's business plans and their impact, and the company's financial results and the factors that will affect them. Future events may turn out to be very different from these statements. The risk factors and forward-looking statements sections in the company's second quarter 2022 Form 10-Q filed today and its 2021 Form 10-K, filed February 15, 2022, describe factors that may lead to different results. A recording of this call may be posted on the company's website. We ask that you do not record this call for public broadcast and that you do not publish any full transcript.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, Krissa C. Halley.

Thanks, Pete. Welcome, and thank you for joining us as we share our second quarter financial results. I'll provide brief opening comments, and then our Chief Financial Officer, Krissa Halley, will cover our second quarter results in more depth. Our net income in the quarter was $4.7 billion, compared with $4.4 billion in the previous quarter. These earnings resulted in an increase to our net worth to $56.4 billion. Our financial results came in the context of notable trends that are having significant impacts on the housing economy. June data showed the consumer price index growing at 9.1% year over year, the highest reading in decades. Economic activity continued to slow with second quarter GDP declining by 0.9% after a 1.6% decline in the first quarter. The Federal Reserve has initiated and communicated its intent to continue to move short-term interest rates higher, as well as reduce its balance sheet. In the second quarter, the 10-year Treasury and 30-year fixed-rate mortgage rates increased by 67 basis points and 103 basis points respectively, continuing a trend that began in earnest at the start of the year. Although single-family housing starts are still above their 2019 average, they have declined from their 2020 peak. We estimate that home prices nationally rose 19.4% year over year in the second quarter. At the same time, home sales continued to decline in the second quarter. Higher home prices and higher mortgage rates have negatively affected affordability. Affordability pressures continue to grow in the multifamily space as well. Vacancy levels in the market remain stable but tight, with the more affordable class B and C supply the most constrained. We now expect annual rent growth across all classes to be in the six to 7% range in 2022. All of which is to say housing continued to get more expensive, making it particularly difficult for first-time home buyers and low and moderate income renters. Although our mortgage acquisitions continue to slow driven by the steep drop in refinancing volume, We continue to deliver on our liquidity mission for the mortgage market, providing $191 billion in financing to the single family and multifamily markets. This included $111 billion in financing for home purchase mortgages, nearly half of which were for first-time home buyers. It also included financing for 156,000 multifamily rental units, a significant majority of which were affordable to households earning it at or below 120% of area median income. Looking ahead, we now expect that a modest recession is likely to occur beginning in the first quarter of 2023. As we noted last quarter, we do not expect a downturn that matches the severity of 2008 in terms of its impact on housing or our financial results. mostly due to better overall credit quality, less leverage, and the maturity of our loss mitigation practices. We project home price growth to moderate in the second half of 2022 and in 2023. It is also possible that some regions of the country may experience home price declines in the latter half of 2022. We expect mortgage rates to stay elevated through the end of 2022 compared with rate levels at the start of the year. Higher rates will worsen affordability and dampen demand. This, coupled with low inventory, will constrain home sales for the remainder of this year. Although Fannie Mae enters this period of uncertainty from a relative position of strength, we are fully aware that we are in a highly unusual and potentially volatile global and economic environment. Therefore, we must expect the unexpected. We will continue to focus on managing our risks and fulfilling our mission to be a reliable source of affordable and sustainable financing. And we remain committed to helping renters and homeowners have access to housing solutions that meet their needs. So now I would like to hand this off to our CFO, Chris Ahaly, for more details about our financial results.