Federal National Mortgage Association - Earnings Call - Q1 2020

Transcript

Speaker 0

Good day, and welcome to the Fannie Mae First Quarter twenty twenty Financial Results Media Call. Today's conference is being recorded. I will now turn it over to your host, Pete Piquel, Fannie Mae's Director of External Communications.

Speaker 1

Thank you. Hello, everyone, and thank you all for joining today's media call to discuss Fannie Mae's first quarter twenty twenty financial results. Note, this call may include forward looking statements, including statements related to the company's response to the COVID-nineteen pandemic and its effects, economic and housing market conditions, the company's future financial and business results and its future financial condition and capital requirements, and the credit quality and performance of its book. Future events may turn out to be very different from these statements. The risk factors and forward looking statements sections of the company's first quarter twenty twenty Form 10 Q filed today describe factors that may lead to different results.

As a reminder, this call is being recorded by Fannie Mae, the and 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 We ask that you do not record this call for public broadcast and that you do not publish any full transcript. I'd now like to turn the call over to Fannie Mae Chief Frater and Chief Financial Officer, Celeste Malay Brown.

Speaker 2

Thanks, Pete. Good morning and thank you for joining today's call to discuss Fannie Mae's first quarter results. As we all know, this is an extraordinary time for our country, for the housing market, and of course, our company. Today, we will discuss what Fannie Mae is doing to help the nation work through the impact of the COVID-nineteen pandemic, how it affected our results in the quarter, and provisionally, what it means for us going forward. I'll kick this off with some introductory remarks, then our CFO, Celeste Brown, will take us through our outlook with respect to COVID nineteen and its effects on our economy and our book, as well as the key drivers of our business in the first quarter.

As I look back to the start of this crisis, and then look ahead to what it will mean for Fannie Mae and the market we serve, there is one crucial takeaway. This is a mission moment for Fannie Mae. Many of you are no doubt listening to this call from your home office. One point this pandemic clearly reinforces is the centrality of housing both our lives and we have now learned to our employment. Doing everything we can to keep people in their homes is essential.

Recognize the importance of housing, Fannie Mae was chartered by the federal government in the wake of the great depression to stabilize the housing finance market during times of financial stress and economic upheaval. We were created to provide liquidity to mortgage lenders, large and small, in good times and especially in tough times. This is such a time. We entered this crisis from a position of relative strength. For the better part of the last decade, we have been reorienting our business model, improving our credit risk management, reducing reliance on portfolio earnings, enhancing our management depth, and hardening our resiliency programs.

So if the crisis took hold in March, Fannie Mae was prepared. I'm glad to report that thus far, these preparations have allowed us to focus on what is most important now and in the months to come. And that is helping the housing market, our customers, and America's homeowners and renters through the ongoing social and economic damage being wrought by COVID nineteen. We are doing our part to provide what shelter we can from this invisible storm, and to provide also for the eventual recovery that will follow. Our first focus is to ensure the safety of our people and the continued uninterrupted operation of our secondary market functions.

We instituted a full telework program for our employees on March 16. Since that time, effectively all of our single family, multi family, and capital markets operations have been conducted virtually. Our goal, of course, was to protect our people and the communities we serve. And our people have adapted remarkably well, managing the stress not only of working remote from home, but meeting the extraordinary demands and volatility of the mortgage market for our customers and mortgage backed securities investors during this time. I'm extremely proud of our team.

In the first quarter, we provided over $200,000,000,000 in liquidity to the mortgage market, including over $80,000,000,000 in March alone. Our ability to provide funding for community lenders was particularly resilient, and our whole loan conduit executed more than 40,000,000,000 in volume in March mostly for small lenders. But I must emphasize that we expect it will be a difficult road ahead, not only for Fannie Mae and its financial performance, but more importantly, for people whose homes are at risk because of the impact of the pandemic. Millions of homeowners and renters need assistance until livelihoods can be resumed. Our single family servicing partners as well as our lender customers in both single family and multi family will face demands unlike any they have seen since the two thousand eight financial crisis.

Fannie Mae is committed to fulfilling its vital role in helping our customers, our servicers, and the market as a whole manage through this period of uncertainty and stress. We initiated efforts to assist homeowners and renters on March 18, issuing guidance for our lenders and servicers on our mortgage forbearance options. A rough estimate is that more than 1,000,000 forbearance plans on Fannie Mae single family loans have been put in place so far, and that number is likely to grow. We issued guidance allowing our multi family lenders to grant forbearance for up to three months if the borrower is experiencing hardship due to the impact of COVID nineteen. Importantly, in order to receive this forbearance, multifamily borrowers must agree to suspend evictions of tenants who are facing financial hardship due to the current crisis.

We have also ramped up our outreach and educational efforts, including updating and refreshing our knowyouroptions.com website. This website has quickly become a go to resource for borrowers in need of information and assistance, and has had close to 1,000,000 unique page views since the much welcome CARES Act was enacted a little over a month ago. In addition, we activated our disaster response network, which offers homeowners and renters in Fannie Mae financed multifamily properties support from HUD approved housing counselors, including personalized recovery assessments and financial coaching. Let me hit on a few final points before turning it over to Celeste. First, our ability to respond now is a direct result of the stress and capabilities we have built over the past decade, working hand in hand with our regulator FHFA.

We have a varied and stress tested toolkit for helping borrowers face hardship, one that did not exist in 02/2008. We have years of experience in working with servicers to help them help struggling borrowers. And as Celeste will describe, the credit quality of our book is stronger than in 2,008. Second, on the liquidity front, as I said, in the last six weeks, we have successfully provided liquidity for large volumes of originations. Our ability to fund secondary market operations has been sound.

Finally, I want to underscore that we are fully committed to working with our regulator and our industry partners as we see our collective way through this trying time. It is sometimes said that people are at their best when things are at their worst. And in that spirit, I wanna give special thanks to the people of Fannie Mae who have stepped up to this mission moment with grit and humility, and above all else, the determination to help our customers help their customers, the struggling homeowners and renters who have been hit hard by this crisis. With that, I'll turn it over to Celeste who will take us through the quarter's results.

Speaker 3

Thank you, Hugh, and good morning, everyone. Given the current situation, we are changing our approach to describing our results this quarter. And we'll start off by discussing our economic outlook and the financial impact of COVID-nineteen on our business. I'll then review our business highlights for the quarter. The COVID-nineteen pandemic has driven a sudden and dramatic change in the economy as people have changed their behaviors and spending habits to avoid exposure while many businesses have furloughed or laid off workers.

After considering many scenarios, our economists believe that the most plausible scenario is one in which the annualized Q1 GDP decline of 4.8% is followed by a more severe annualized decline of around 25% in the second quarter. Despite a forecasted rebound in the second half of the year, we expect full year 2020 GDP to fall approximately 3% and bounce back in 2021 to approximately 5% growth. We expect the unemployment rate to average 12% in the 2020 with a peak of close to 15% before ending 2020 around 7%. These estimates are based on our assumption that economic activity will begin to restart in June as social distancing measures and mandated shutdowns are eased. There is inherent uncertainty in our forecast, given the uncertainty around the severity and duration of the pandemic.

For example, a one month delay in a pickup in economic activity could result in a 35% to 40% annualized decline in GDP for the second quarter and 5% to 8% for the year, while the average unemployment rate for 2Q could be closer to 15%. Amid the uncertainty of COVID-nineteen, Treasury rates plunged in the first quarter reaching record lows. Mortgage rates followed more slowly with widening spreads primarily due to lender capacity constraints in the face of large refinance volumes. We expect Treasury rates to stay below 100 basis points and mortgage rates to stay near current low levels through the end of the year. Turning to housing, our proprietary Home Purchase Sentiment Index or HPSI fell 11.7 points in March, the largest single month decline in the survey's history.

While the housing market was in a strong position in the beginning of the year, we now expect total home sales to decline by more than 30% in the second quarter as people shift their behavior to avoid exposure. As people hold off purchasing homes in light of the uncertainties surrounding the effects of the virus and the economy, we also expect home construction to decline. We expect single family housing starts to fall sharply in the second quarter with full year housing starts declining by nearly 8%. As a result of lower home sales forecast, we have decreased our estimate of twenty twenty single family purchase originations. At the same time, we have increased our refinance origination forecast due to a lower rate environment.

We expect a boost in refinance volume to drive total originations up by nearly 10% in 2020 versus 2019. Given our economic outlook and the slowdown in housing activity, we believe home prices in 2020 will be relatively flat, a significant decrease from our prior estimate of over 4% growth. And because we believe home price growth was positive in the first quarter, our forecast implies declines for the rest of the year. On the multifamily side, while we expect a modest rise in vacancy and lower or possibly negative rent growth, we believe multifamily assets will generally perform better than other commercial real estate assets. Given the uncertain employment environment as well as eviction moratoriums imposed by the CARES Act, and in some cases by local municipalities, we expect most tenants to stay in place.

As Hugh said, we are committed to helping borrowers and are taking action to help Americans manage the impact of the pandemic, including providing forbearance to single family and multifamily borrowers with COVID-nineteen related hardships. I'd like to take some time to talk about how forbearance affects our financials and the implications to our retained portfolio, liquidity position and conservatorship capital. First, our financial and projections include the benefit of the recent accounting relief provided for troubled debt restructurings or TDRs by the CARES Act and inter agency banking guidance. While we estimate that approximately 7% of loans in our single family book have taken forbearance so far, our allowance in the quarter reflects uptake of 15%. Uptake could be higher if economic conditions are worse than our forecast.

On the multifamily side, only a small number of properties have thus opted into a forbearance agreement, though our allowance estimate reflects a much higher uptake of 20%. I'd like to caveat that the current and projected forbearance numbers are preliminary and are likely to change as we evaluate new data over the coming months. When a single family loan enters forbearance, the borrower may temporarily stop making their principal and interest, or P and I, payments without incurring penalties. When a borrower misses a P and I payment, for the majority of our loans, servicers advance the payment to MBS investors for the first four months. After four months, we will advance payments to MBS investors, an approach that is now consistent across the GSEs.

In addition, we will reimburse servicers for payments they have made when a loan exits forbearance. For single family loans, there are several outcomes once the forbearance period ends. If the borrower is able to begin paying their mortgage again, the servicer will initially either set up a repayment plan or allow the borrower to defer payment. In these cases, the loan stays in the MBS trust, which is beneficial to us from a liquidity perspective as we do not need to fund a buyout. If these options do not work for the borrower, then the loan is modified to maintain or reduce the borrower's monthly mortgage payment.

If none of these options work, then the loan may default. In cases where the loan is modified or the loan defaults, we will likely need to buy the impacted loan out of the MBS trust. Loans entering forbearance affect our financials in several ways. The largest immediate impact, which we saw in the first quarter, was to credit related expense. Under CECL, which we implemented in the first quarter, we are required to set aside reserves for lifetime expected credit losses based on a reasonable and supportable approach.

In a few moments, I'll explain in more detail how we developed the estimated impact of COVID-nineteen on our allowance. But first, I'd like to explain how forbearance affects net interest income, our retained portfolio, our liquidity position, and capital. First, impacts to net interest income. In accordance with interagency banking guidance recently issued in response to COVID-nineteen, we may elect to modify our policy to increase the number of months for which we can accrue interest income on loans and forbearance, which would reduce the typically negative effect of our non accrual policy on interest income. However, it is important to note that while we may be able to continue to recognize interest income, we would also need to assess our accrued interest receivables for collectability.

This means that we may need to book an allowance against the receivable in the second quarter. In addition, because we are issuing debt to finance P and I payments to MBS investors and potentially to purchase loans out of trust, we will incur additional interest expense, which further reduces our net interest income. Second, the impact to our retained portfolio. We use our retained portfolio primarily to provide liquidity to the mortgage market through buying whole loans from small and medium sized lenders and to support our loss mitigation activities. At the end of the first quarter, our retained portfolio balance fell to $151,000,000,000 from $154,000,000,000 the previous quarter, well below the current FHFA limit of $225,000,000,000 However, due to the impact of COVID-nineteen, we see a couple of emerging trends that may result in our retained portfolio balance increasing.

First, as we seek to provide liquidity and other market participants have pulled back from the market, we have become an even more important liquidity provider. This increased volume has caused our whole loan conduit to grow. Second, if some modified or defaulted loans need to be purchased out of MBS trusts, in future periods our loss mitigation portfolio is likely to grow. The size of our whole loan conduit and the potential volume of loans that may need to be purchased out of trusts could result in our needing to request FHFA and Treasury's consent to increase our current retained portfolio and debt limits. Third, let me touch on liquidity.

To fund whole loan conduit purchasing needs, expected P and I advances to lenders and increases in MBS buyout activity, we have been increasing our other investments portfolio. The balance climbed to $133,000,000,000 at the end of the first quarter, up from $74,000,000,000 in December. Fourth, let me address the impacts of COVID on conservatorship capital. We continue to expect that FHFA will re propose the enterprise capital requirements later this quarter. It is possible that some of the impacts I described may no longer apply or be as substantial under the new capital rule.

That said, under the rule that currently applies to us, our conservatorship capital is likely to substantially increase as a result of the COVID-nineteen crisis. Loans in forbearance will carry a higher capital charge. Loans that miss even one payment are flagged as nonperforming and have a significantly higher capital rate under the conservatorship capital framework. As an example, credit risk capital increases by over five times with even one missed payment on a single family loan. When loans exit forbearance and complete modification trials, they are considered reperforming.

While credit risk capital charges for modified reperforming single family loans are lower than for nonperforming loans, they could still drive a substantial increase in our capital requirements for an extended period of time. Additionally, nonperforming and reperforming loans we buy out of trust will incur a 4.75% additional market risk charge. Another item affecting conservatorship capital is CRT. Our credit risk transfer programs enable us to transfer some of the risk on the loans that we acquire. The recent economic turbulence uncertainty limits our ability to issue new CRT transactions in the near term, which is consistent with what we have modeled in our stress testing.

If current conditions continue for an extended period, it will limit future benefits to our financials and capital position. If home prices decline, our capital requirements will increase due to the pro cyclicality in the current capital framework, although home prices consumed for the conservator capital framework are lagged by two quarters. Thus, home price changes in Q2 twenty twenty would affect conservatorship capital in Q4 twenty twenty. A 1% home price change in FHFA's model equates to a five basis point capital change or $1,500,000,000 increase or decrease to our capital requirement. I'll turn now to how we estimated the allowance impact of COVID-nineteen in the first quarter.

To estimate losses associated with forbearance, we considered employment risks in a state lockdown analysis and then layered in assumptions on the possible outcomes once the forbearance period ends. We used information gleaned from historical large scale forbearance periods such as the twenty seventeen hurricane. Based on this analysis, we estimated the percentage of loans in our single family and multifamily books that we expect will enter forbearance, which are 1520% respectively, as I mentioned previously. Our estimate also reflects the adoption of the TDR accounting relief provided for in the CARES Act. Of the single family loans entering forbearance, we estimated the percentage of loans that would self cure, modify, or enter foreclosure.

For multifamily loans entering forbearance, we estimated that the vast majority of borrowers would begin paying after the three month forbearance period and that loans would not need to be modified. Borrowers would be expected to make up missed payments over the next twelve months. For the first quarter, the impacts of the COVID-nineteen pandemic drove an allowance increase of $4,100,000,000 which accounts for the expected effects of forbearance as well as for the reduction in our 2020 home price forecast that I mentioned previously. If it turns out that more loans enter forbearance than we estimated or if the outcomes of the loans at the end of forbearance are more adverse than we expect, this would also increase our allowance as our expectation of credit losses would increase. In addition, worse home price or multifamily property value expectations would increase the allowance.

Because of the actions we have taken to strengthen the economy, their company during conservatorship, our book is in far better shape than it was at the beginning of the financial crisis. Since that time, we have improved our underwriting and credit risk management. As a result, our book has a much stronger credit profile. For instance, at the end of twenty nineteen, the weighted average mark to market loan to value ratio for the single family book was 57% compared with 70% in 02/2008. And the percentage of loans with mark to market loan to value ratios above 100% has decreased from 12% at the end of 2008 to 0.3% at the end of twenty nineteen, which underscores that the proportion of loans on our book that present the greatest default risk has substantially decreased.

For multifamily, the book had an average debt service coverage ratio, or DSCR, of approximately 2x at the end of twenty nineteen, meaning that net operating income of multifamily properties was approximately double the debt service requirement. If net operating income on the book hypothetically decreased by 20% on average, the share of the book with coverage below 1x would only increase from 2% to 6%, thereby granting better assurance that borrowers will continue to pay. Further, even in cases where multi family loans may default, our delegated underwriting and service program, or DUS program, provides that our lender partners will share an approximately one third of the credit losses reducing the impact to us. As a result of our improved underwriting, our book of business now has a stronger credit profile. In addition to having a stronger book to withstand the crisis, we have well established loss mitigation programs, dollars 13,900,000,000.0 of capital at the end of Q1 to cushion against potential losses, and $113,900,000,000 in remaining funding under the senior preferred stock purchase agreement with Treasury.

Now I'd like to turn to the first quarter financials in brief. In the quarter, we earned a comprehensive income of $476,000,000 down 3,800,000 from the fourth quarter largely due to a switch from credit related income in the fourth quarter to credit related expense in the first. In total, the switch to credit related expense drove a $2,800,000,000 reduction in pretax earnings, which reflects the aforementioned $4,100,000,000 allowance increase to account for expected COVID-nineteen associated losses as well as partially offsetting beneficial interest rate impacts. Also contributing to the quarter over quarter reduction in income was a shift from investment gains in the fourth quarter to losses in the first. Investment losses in the first quarter were mainly due to a decrease in the fair value of our single family loans held for sale.

In the fourth quarter, we had investment gains primarily due to reperforming loan sales. As a result of a $1,100,000,000 one time charge to our retained earnings associated with the implementation of CECL less the amount of our earnings this quarter, our net worth fell to $13,900,000,000 at the end of the first quarter from 14,600,000,000.0 in the fourth. Turning to the single family business, the segment earned net income of $68,000,000 in the first quarter, which is down from 3,800,000,000.0 in the fourth, driven primarily by the same factors that drove our overall results. For the single family business, credit related income in the fourth quarter switched to expense in the first quarter, driving a $2,400,000,000 pretax charge change, which reflects a $3,400,000,000 impact from COVID-nineteen related adjustments, partially offset by the beneficial interest rate impact. Our market share of single family mortgage loans securitized by the GSEs was 59% compared to 57% in the fourth quarter.

Single family acquisitions of $191,000,000,000 in the first quarter were similar to those in the fourth. Overall, refinance volumes increased by $6,000,000,000 due to declining mortgage rates, partially offset by reduced purchase volumes. Our average single family conventional guarantee book of business grew by $18,000,000,000 quarter over quarter, while the serious delinquency rate remained flat at 66 basis points. Our SDQ rate does not yet reflect the impact of the pandemic. For multifamily, our net income of $393,000,000 decreased by roughly $150,000,000 versus the fourth quarter, driven primarily by credit related expense associated with the impact of COVID-nineteen in the first quarter.

The average multifamily book was up by over 2% in the quarter and 10% year over year, and the book remained strong from a credit perspective. The serious delinquency rate increased slightly to five basis points at the end of the first quarter from four in the fourth, while the substandard rate remained historically low at two point two percent. As is the case with single family, our multifamily SDQ and substandard rates do not yet reflect the impact of the pandemic. Our share of multifamily GSE mortgage originations mortgage acquisitions increased to 59% in the first quarter from 51% in the fourth. Multifamily volume in Q1 was $14,000,000,000 bringing our total acquisition volume under the FHFA's May volume cap to $32,000,000,000 and leaving $68,000,000,000 in capacity under the cap through the end of twenty twenty.

Our capital requirement under conservatorship capital framework was approximately $83,000,000,000 in the first quarter, down from 84,000,000,000 in the fourth. I expect that next quarter we will again be discussing the impact of COVID-nineteen on our financials, And we will start to see additional impacts on our business. For the first quarter, the impact to our financials is largely based on management judgment. And by next quarter, we will have more data points to consider and we'll reevaluate our economic outlook as well as our assumptions regarding forbearance and our loan loss allowance. I'll now turn it over back to Hugh.

Speaker 2

Thank you, Celeste. Before we go to questions, I want to reiterate that much work lies ahead to borrowers, renters, and the housing market recover. But the market will recover eventually. It won't be easy, especially for homeowners and renters experiencing loss of income. Nor will it be easy for the lenders and mortgage servicers who will be on the front lines helping them.

For our part, it is Fannie Mae's mission to provide leadership, promote practical solutions, and ensure that the mortgage market is liquid and stable enough to keep mortgage credit flowing to households. And all of us here at Fannie Mae are committed to playing that role to our fullest. Together, we'll get through this and come out stronger as our country always does. Thank you for joining us today.

Speaker 0

We'll now open the call for questions that pertain only to the earnings statement just released. There will be no Q and A on any other topics. Thank you. Again, you can press star then 1 on your telephone to enter the queue. And our first question will come from Bonnie Sinoc with Arizant.

Speaker 4

Hi. Thank you for taking my question. There were three things I wondered if I could ask you about. One was about the credit risk transfer, the back end credit risk transfer, transactions. It looks like or if I was hearing right, those would be suspended for this time or some kind of reduction in those.

I just wanna clarify, CECL has been delayed from some of the entities, but you're not one of the entities that can delay it. Is that why you're still recording that? And then I didn't know if you could talk me through the mechanism through how, payments will work after the four months in which the servicers, when the servicers stop advancing?

Speaker 3

Hi, Bonnie. Nice to hear from you. So first, on the credit risk transfer side, yes, currently, we are not issuing credit transfer. Our expectation has always been that in periods of great economic and housing market uncertainty, we would not be able to issue these. And we'll see how things go once there's more clarity in the economy and, you know, more clarity more broadly.

But at this point, you know, we're not attempting to issue anything. But we'll keep you posted on that. Second, as it relates to CECL, we did adopt CECL this quarter. There was not relief provided for us in any of the CARES Act or any other bills. But there is actually a benefit to CECL to the extent that you believe that you have visibility into recoveries, can reflect that in CECL.

So because at this point, we expect the impact to be shorter lived than some of the things we saw in prior periods. We booked both the impact of the forbearance, but also the likelihood that many of these borrowers, we hope, will be able to get back on track and to start paying their mortgages again, either with the repayment plan at the time or with payments deferred to a later date on the payments that were missed. And your last question, I'm not quite sure I understood it. I believe it was the mechanism for servicers. At four months, we began advancing the P and I to the trust.

And then when the forbearance period ends, we will reimport first the servicers. So, for example, if someone has forbearance for six months after four, the servicers would stop advancing and we would begin advancing for two months. And then at the end of that six month period, assuming the borrower is out of forbearance, we would repay the servicers for the four months that they advanced.

Speaker 4

Okay. Thank you. And just one point on the CRTs that I wouldn't I'm thinking that that means that the issue is when you have a period of great uncertainty in the housing market, it would be hard to create a market for those. That's how I

Speaker 5

read that, but tell me if that's wrong.

Speaker 3

Yeah. I mean, that's that's true. I mean, that's the case in a lot of the markets right now. There's great uncertainty.

Speaker 4

Right.

Speaker 3

You know, in some cases, you see in the corporate credit markets, for example, people are borrowing, but it costs them a lot more. So, you know, we we are in a position where we have quite a bit of CRT and and and loss mitigation and and coverage in place. And, you know, at some point, we hope to be back in those markets. But if it were the CRT securities are are similar to lots of other things out there where people just need to have a better sense for what's gonna happen in the future.

Speaker 4

Okay, got it. Thank you.

Speaker 0

Our next question will come from Andrew Ackerman with The Wall Street Journal.

Speaker 5

Hi. Thanks for doing the call. I the increased allowance for loan losses, the $4,100,000,000 figure, is that basically your best guess as to how many loans already in forbearance will eventually become delinquent? And is that at all tied to the implementation of CECL, that large figure?

Speaker 3

Hi, Andrew. I couldn't quite hear the second part of your question, but the allowance reflects a few things. One, while the $4,100,000,000 that we took for COVID-nineteen, about $1,000,000,000 of that reflects the impact of our reduced home price outlook. And then the balance is based on our assumptions for forbearance. So as I mentioned during the call, and I think as Hugh mentioned, there are over 1,000,000 single family loans or about 7% of our book in forbearance.

We estimate today we're using numbers from servicers, so it's not quite as precise a number as we would normally have. Our estimate is that 15% of our single family book and 20% of our multi family book would go into forbearance, and that's based on a number of things, including where the loans are, the type of employment, you know, state lockdowns, etcetera. So, you know, doubling basically of of of what we're seeing so far.

Speaker 2

Okay. That's that's helpful.

Speaker 5

I mean, other thing, do you have a sense of how much debt you will have to issue once you begin taking over advances on forgone loans in a few months?

Speaker 3

Yes. We estimates around that. The numbers I've seen out there for the industry as a whole are are are large, but for us, they're very manageable, particularly given the amount of debt that we have and we'll continue to be able to issue. But, you know, we're we're they're not they're not as big as some of the numbers that you've seen out there for the industry as a whole.

Speaker 4

Okay. And I'm sorry. Just to go back to the the sort

Speaker 5

of doubling of forbearance, is that your projection or you're just trying to be conservative in in, like, husbanding your resources, I guess?

Speaker 3

Well, yeah, the the accountants would would say you cannot be conservative. You have to have your best estimate. So that is our best estimate as of today based on our expectations for the economy and, you know, lockdowns and based on the the types of employment that some of the the borrowers have. So 15% at the moment is our best estimate for a single family of where we think forbearance will land.

Speaker 6

Thanks.

Speaker 0

Our next question will come from Dennis Hollier with Inside Mortgage Finance.

Speaker 6

Hi. Thanks for taking my call. I'm curious about what impact you think if what would the impact have been on the c CECL charge if you had been doing fully fully doing hedge accounting?

Speaker 3

I I I it was a little bit hard for me to hear you, but I believe you asked what the impact of CECL would have been if we had been doing hedge accounting. There there wouldn't have been a discernible impact on CECL from hedge accounting. It would have reduced the volatility of some of the mark to market, lines in, on our income statement, but I I don't have, the estimates in front of me of what that benefit would have been.

Speaker 6

Has the crisis created an incentive to move to to hedge accounting?

Speaker 3

We have been working, very diligently on hedge accounting. If anything and we expect that our initial expectation implementation for later this year will likely move slightly to the first quarter of next year as we are focused quite a bit on the work we need to do for borrowers and servicers at the moment. Hedge accounting is an important tool in any period. But in particular, if we do need to increase the size of our retained portfolio as it relates to buyouts and also, because of the size of the conduit, it will become an even more important tool for us to be able to manage any potential earnings volatility.

Speaker 6

Excellent. Thanks. I appreciate it.

Speaker 0

At this time, I see no further questions in the queue. I will now turn it back over to Fannie Mae Chief Executive Officer, Hugh R. Froedter.

Speaker 2

Well, thank you everyone for, joining the call today, and, thanks for your time.

Speaker 0

Ladies and gentlemen, that does conclude our call for today. Thank you for your participation. You may now disconnect.