Nov 3, 2016
Executives
Maureen Davenport - SVP and CCO Timothy Mayopoulos - President and CEO
Analysts
Joe Light - Bloomberg News
Operator
Welcome and thank you for standing-by for the Fannie Mae's Third Quarter 2016 Financial Results Media Call and Webcast. At this time, all participants are in a listen-only mode.
[Operator Instructions] Today's conference is being recorded. If you have any objections you may disconnect at this time.
Now, I would like to turn it over to your host, Maureen Davenport, Fannie Mae's Senior Vice President and Chief Communications Officer. Thank you.
You may begin.
Maureen Davenport
Thanks very much. Good morning, everyone.
Thank you for joining the media call and webcast to discuss Fannie Mae’s third quarter 2016 financial results. Please note that this call may include forward-looking statements, including statements about the company's future performance, business plans, and strategy.
Future events may turn out to be very different from these statements. The Risk Factors and Forward-Looking Statements section in the company's third quarter 2016 Form 10-Q filed today and 2015 Form 10-K describe the factors that may lead to different results.
As a reminder, this call is being webcast and recorded by Fannie Mae and the recording 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 We ask that you do not record this call for public broadcast, and that you do not publish any full transcript thereof.
Following the remarks from Fannie Mae's President and Chief Executive Officer, Tim Mayopoulos, we will open the media conference lines for questions from reporters. Those of you participating via webcast, your lines will be muted throughout the call.
[Operator Instructions] In order to answer as many questions as possible we ask that reporters only ask one question. All lines will be muted unless you're asking a question.
And now I'd like to turn the media conference call over to Fannie Mae’s President and CEO, Tim Mayopoulos.
Timothy Mayopoulos
Thanks, Maureen, and good morning, everybody. Thanks for joining us today, as we share our financial results for the third quarter of 2016.
We had another quarter of solid financial performance. This morning, I want to summarize the primary drivers of our third quarter financial results and I also want to update you on the innovative technologies that we are delivering for customers to help them lend with greater speed, simplicity and certainty.
These innovations make the mortgage process better for lenders and for borrowers. First, let me review Fannie Mae's third quarter results.
We reported net income of $3.2 billion and comprehensive income of $3 billion in the third quarter. This is an increase in both net income and comprehensive income over the second quarter of 2016.
An increase was due primarily to lower fair value losses on the company's derivatives, partially offset by a decrease in credit related income in the third quarter. Based on our third quarter results, we expect to pay treasury of $3 billion in dividends by the end of December.
Fannie Mae remains a steady continuous resource of mortgage financing to ensure broad access to quality rental housing and predictable long-term mortgages, including the 30-year fixed-rate mortgage that we helped make possible. The credit quality of the post crisis credit book is strong and the book continues to perform well.
The underlying fundamentals of our business are strong and we expect to remain profitable on an annual basis for the foreseeable future. However, as I have said in the past, there are factors that we do not control, such as changes in interest rates and home prices, which can cause significant volatility in our financial results.
These factors may have a positive or negative effect in any given quarter. A few specific points to highlight.
The gain for our single-family mortgage guarantee business remains strong and in the third quarter, the company provided a $184 billion in liquidity. Our service delinquency rates in our single-family mortgage credit book was 1.24% as of the end of September, compared to 5.47% at its peak.
Fannie Mae service delinquency rate has decreased for 26 consecutive quarters. The portion of net interest income derived from the retained mortgage portfolio continues to decline and the portion coming from the guarantee fee business continues to increase.
We expect this trend to continue. In the third quarter, more than two-thirds of net interest income was derived from our mortgage guarantee business.
We continue to reduce taxpayer risk and attract private capital through sharing transactions. As of September 30, more than 20% of the loan in our single-family conventional guarantee book of business measured by unpaid principal balances were covered by one of our credit risk transfer transactions with private investors.
Our third quarter results reflect our strong business performance. Fannie Mae is also performing well and delivering innovations for the benefit of lenders, borrowers and tax payers.
Last week, we announced day one certainty, a series of innovations that we and our customers are very excited about and which represent a step forward in the digitization of the mortgage process. Let me recap that announcement.
First, we will offer data validation services through our desktop underwriter system. The customers use these services to validate a borrower’s income, assets, employment status, we will provide freedom from representations and warranties on those items.
This reduces risk, increases efficiency for our customers and reduces time and paperwork for borrowers applying for a mortgage. Second, we will begin leveraging the power of our collateral underwriter tool to offer the same freedom from representations and warranties on the appraised value of the property.
And finally, we’re making it easier for customers to receive property inspection waivers on eligible refinances. These new tools will make doing business progress faster, simpler and more certain.
Customers will have greater confidence that when they sell loan to us, it will stay sold. These innovations also make it easier for lenders to do business with Fannie Mae and they deliver significant efficiencies for both lenders and borrowers.
In fact, lenders who have tested our data validation service report that they can now preapprove borrowers in minutes, not days. They also report that in some cases they are able to slice four to seven days off the time it takes to process a mortgage.
More broadly these innovations represent important strides towards stronger and better risk management for the housing finance system. Ultimately, we believe it is possible to bring an end to the representations and warranties model as we know it today.
We believe it is possible to achieve day one certainty in real-time across a fully digitized mortgage process. That’s the vision, we’re driving towards, it's the one that inspires here at Fannie Mae to continue our work to make the housing finance system stronger.
In summary, this was another strong quarter of financial performance and we are continuing to drive innovations both within Fannie Mae and in the broader market. These innovations are bringing valuable, tangible, bringing tangible value to our lender partners, helping transform the mortgage experience and strengthening our housing finance system.
I appreciate your time, I'm happy to open this up now for your questions.
Operator
Thank you. We will now begin the question and answer session.
[Operator Instructions] Joe Light, Bloomberg News, your line is open.
Joe Light
Hi. Good morning.
Thanks for taking the question. I was wondering if you could talk a little bit about FHFA’s preliminary report from last week, showing that you guys and Freddie didn’t meet all of your affordable housing goals, then I guess why you think that happened despite some of the stuff you've rolled out over the last couple of years.
And what you’re planning to do to fix that and meet the goals?
Timothy Mayopoulos
Thanks, Joe. Appreciate the question.
First, as you noted, the results that the FHFA published are preliminary results, they're not the final results and as I think you know FHFA goes through a process of evaluating whether the goals that were set were in fact achievable. So, obviously, they set those goals well in advance of what we need - and then there is a process by which they evaluate whether it was achievable for the enterprises to meet those goals.
So, we’re gathering up information at the request of FHFA, we’ll provide that and they then make that evaluation. I will say that we have worked hard at Fannie Mae to try to increase access to credit, especially for low to moderate income borrowers and we will continue to focus on doing that.
I do think that we are seeing positive signs in terms of some of the programs that we’ve rolled out, putting our home-ready, 97 LTV products, we are getting good pick up on that. We are seeing something like over 800 lenders deliver home-ready loans to us and we are pleased with the results that are coming in there.
So, that’s obviously been a gradual building up process and we expect to see higher levels of results that going forward than we saw out there.
Operator
Bonnie [ph] National Mortgage News. Your line is open.
Unidentified Analyst
Hi, thanks for taking the question. I wondered if you could give me a sense of you mentioned the risk sharing and the technology tools, what are kind of budget number behind this.
Timothy Mayopoulos
Yeah, I don’t have those numbers at hand, but much of the change that’s coming is part of an overall process at Fannie Mae to continuously improve our technology platform. Obviously, many of these systems that this company uses have been around by the long time, so if you look at something like desktop underwriter for example are automated underwriting system.
It’s been around for more than 20 years but we’re now, we just recently rolled out version 10.0, so obviously in the course of decades of the use of these systems we are constantly evaluating them and upgrading them. So, it’s just I think what you’re seeing about the risk sharing side as well as some of these other innovations that we’re delivering this is all part of a continuous process that we have at the company to keep our systems strong and capable into the greatest extent possible set to state of the art.
Operator
I show no further questions. [Operator Instructions].
Timothy Mayopoulos
Thank you all very much. Appreciate your questions today.
Have a great day, and we’ll talk with you next quarter. Thanks.
Operator
This concludes today’s conference call. Thank you for participating.
You may disconnect at this time.