Fannie Mae 2001 Annual Report Download - page 50

•Revenue growth should more than offset higher than
normal administrative costs in 2002 associated with
Fannie Mae’s initiative to upgrade the technology
underlying its core operating infrastructure and
systems.
The demand for the American dream will grow even
stronger in 2002, and so will Fannie Mae’s determination
to meet that demand. In furthering its mission to increase
homeownership, Fannie Mae has several strategic initiatives
that it will continue to pursue in 2002, including:
•The $2 trillion American Dream CommitmentSM,
which involves a six-point plan to invest $2 trillion
and serve 18 million households over ten years to
close homeownership gaps, strengthen communities
and stabilize neighborhoods, and fight discrimination
and unfair practices in the mortgage marketplace.
•E-commerce strategies and core infrastructure
project to:
–allow for rapid acquisition and risk assessment of
mortgage assets through multiple channels,
–facilitate new revenue generating products, and
–generate cost reductions for the consumer,
Fannie Mae partners, and the company.
Management expects that the fundamental economic drivers
behind the demand for housing—household formation,
homeownership rates, home price appreciation, and debt-to-
value ratios—will remain strong throughout the next decade
and expand the volume of mortgage debt outstanding.
Fannie Mae expects that the continued growth in residential
mortgage debt throughout the decade will positively impact
Fannie Mae’s long-term earnings trend.
Comparison of 2000 with 1999
The following discussion and analysis compares
Fannie Mae’s results of operations for the years ended
December 31, 2000 and 1999.
Results of Operations
Operating net income increased 14 percent to $4.448 billion
in 2000 from $3.912 billion in 1999. Diluted operating EPS
rose 15 percent to $4.29, up from $3.72 in 1999.
Total taxable-equivalent revenues grew 12 percent to
$7.825 billion in 2000 from $6.975 billion in 1999. The
growth was attributable largely to solid increases in net
interest income.
Net interest income increased 16 percent to $5.674 billion
in 2000 because of 18 percent growth in the net mortgage
portfolio combined with a stable average net interest margin.
Guaranty fee income increased 5 percent to $1.351 billion in
2000 from $1.282 billion in 1999. Guaranty fee income grew
due to the combination of 4 percent growth in average net
Fannie Mae MBS outstanding and a slight increase in the
average effective guaranty fee rate.
Fee and other income (expense) declined to an expense of
$44 million in 2000 from income of $191 million in 1999.
The $235 million decrease was primarily due to an increase
in net operating losses from certain tax-advantaged
investments and a hedging loss on an anticipated Benchmark
note issuance.
Credit-related expenses decreased $33 million to $94 million
in 2000 from $127 million in 1999 despite continued growth
in Fannie Mae’s book of business. Credit-related losses fell as
a percentage of the average book of business to .7 basis points
in 2000 from 1.1 basis points in 1999. The provision for
losses remained stable at negative $120 million in
conjunction with Fannie Mae’s current policy of recording
a negative loss provision in line with net recoveries.
Administrative expenses grew 13 percent to $905 million in
2000 from $800 million in 1999 primarily due to increased
expenses associated with eBusiness technology, Single-
Family Mortgage Business infrastructure, and housing
and community development initiatives.
The provision for federal income taxes, net of the tax impact
from debt extinguishments, increased to $1.583 billion in
2000 from $1.514 billion in 1999. The effective federal
income tax rate decreased to 26 percent in 2000 from
28 percent in 1999. The reduction in the 2000 effective
federal income tax rate was attributable primarily to
increased tax credits from a higher volume of affordable
housing investments.
During 2000, Fannie Mae called or repurchased $18 billion
in debt and notional principal of interest rate swaps carrying
a weighted-average cost of 7.10 percent. The comparable
amount in 1999 was $42 billion, with a weighted-average
cost of 6.80 percent. As a result of repurchase and call
activity, Fannie Mae recognized net extraordinary gains of
$49 million ($32 million after tax) in 2000, compared with
net extraordinary losses of $14 million ($9 million after tax)
in 1999.
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