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10 FANNIE MAE REPORTS NET INCOME OF $1.9 BILLION FOR Q1 Fannie Mae reported a net income of $1.9 billion for the first quarter of 2015, up from $1.3 billion in the previous quarter, according to Fannie Mae's Q1 2015 financial results released last month. e primary driver of the nearly 50 percent quarter-over-quarter increase in net income was lower fair value losses for Q1, according to Fannie Mae's announcement. Fair value losses totaled $1.9 billion for Q1, compared to $2.5 billion for Q 4 2014, primarily due to smaller declines in longer-term interest rates that negatively impact Fannie Mae's risk management derivatives. Fannie Mae's comprehensive income for Q1 was reported at $1.8 billion, up from $1.3 billion in Q 4. e enterprise reported a net worth of $3.6 billion as of the end of Q1, which will result in a payment of $1.8 billion to the Department of Treasury in June per the terms of a 2012 amendment to the 2008 bailout agreement. Following the forthcoming June payment, Fannie Mae will have paid $138.2 billion in dividends to Treasury—about $22.1 billion more than the $116.1 billion bailout Fannie Mae received from taxpayers in 2008 to continue operations. "is was another quarter of strong financial performance. We continued to have solid revenues. While we experienced some interest rate volatility again this quarter, we expect to remain profitable on an annual basis for the foreseeable future," said Timothy J. Mayopoulos, president and CEO of Fannie Mae. "We continued to make progress against our goals, and we are managing the company on a basis that produces good economic value for the taxpayer. We are focused on delivering value to our business partners and making it simpler and easier for lenders to serve the housing market safely, efficiently, and profitably." Other highlights of Fannie Mae's Q1 financial reports include 34,000 workout solutions to homeowners to avoid foreclosure or retain their homes during the quarter, and $124 billion in liquidity to the mortgage market, enabling families to buy, refinance, or rent homes. Earlier this week, Fannie Mae's fellow GSE, Freddie Mac, reported a net income of $524 million for Q1, up from $227 million the previous quarter. Q1 was the 14th consecutive quarter of profitability for Freddie Mac. Both GSEs returned to profitability in 2012, four years after their combined $187.5 billion bailout from taxpayers, and they have been profitable ever since. Some analysts recently questioned their ability to remain profitable, however; the results of a stress test recently released by the GSEs' conservator, the Federal Housing Finance Agency (FHFA), showed Fannie Mae and Freddie Mac would likely need a bailout of up to $157 billion under certain hypothetical adverse economic conditions. "Fannie Mae expects to remain profitable on an annual basis for the foreseeable future; however, the company expects its earnings in 2015 and future years will be substantially lower than its earnings for 2014, due primarily to the company's expectation of substantially lower income from resolution agreements, continued declines in net interest income from its retained mortgage portfolio assets, and lower credit- related income," Fannie Mae said in its report. "In addition, certain factors, such as changes in interest rates or home prices, could result in significant volatility in the company's financial results from quarter to quarter or year to year." Other factors that will affect Fannie Mae's profitability in the future include guaranty fee rates; single-family mortgage origination volume; and the size, composition, and quality of its mortgage portfolio and book of business, in addition to economic and housing market conditions, according to Fannie Mae. FORMER FANNIE MAE CEO TESTIFIES IN FHFA V. NOMURA TRIAL Former Fannie Mae CEO Daniel Mudd took the witness stand in a Manhattan federal court in March in the trial of the Federal Housing Finance Agency (FHFA) v Nomura Holdings in which FHFA is seeking $1.1 billion in damages over losses suffered when the housing crisis hit. e agency alleged it suffered monumental losses when the sponsor of certain mortgage- backed securities, Nomura, and the securities' underwriter, Royal Bank of Scotland (RBS), did not follow underwriting guidelines on 68 percent of a sample of a bundle of securities backing more than $2 billion worth of mortgages sold to the GSEs prior to the financial crisis of 2008. Mudd, who left Fannie Mae in 2008 after it was taken over by FHFA, was subpoenaed by Nomura and RBS to testify in the trial, according to the report. Mudd reportedly testified in the trial that certain macroeconomic factors, including housing prices, could possibly have an impact on investments such as mortgage-backed securities. When he was asked if Fannie Mae could have predicted the magnitude of the housing crash, Mudd said the GSE's predictions "undershot" what eventually happened and that to his knowledge, no one at Fannie Mae could have accurately predicted the extent of the housing crisis. Judge Denise Cote is overseeing the non-jury trial, which began on March 16 in the U.S. District Court of the Southern District of New York in Manhattan. Nomura, which is headquartered in Japan and is one of the world's biggest banks, and the Royal Bank of Scotland are the first financial institutions to go to trial out of the 18 lenders FHFA sued in 2011 to recoup U.S. taxpayer costs following the government's $188 billion bailout of Fannie Mae and Freddie Mac in 2008, when the government seized control of both enterprises. e other 16 lenders have paid a combined total of about $24 billion to settle with FHFA. Foreclosure completions totaled 41,000 for March 2015, down from 48,000 in March 2014 but still almost double the monthly pre-crisis monthly rate of 21,000 from 2000 to 2006, according to CoreLogic. KNOW THIS

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