Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Federal Home Loan Mortgage Corp (FMCC, Financial) earned $2.8 billion in the second quarter, increasing its net worth to $53 billion.
- The company financed 212,000 home purchases, with 53% being first-time homebuyers and 53% affordable to low and moderate-income families.
- Net interest income increased by 9% year-over-year to $4.9 billion, driven by growth in the Single-Family mortgage portfolio and lower debt-related expenses.
- Non-interest income rose by 30% year-over-year to $1.1 billion, primarily due to higher guarantee income and net investment gains.
- The Single-Family serious delinquency rate continued to be historically low, declining to 50 basis points at the end of the second quarter.
Negative Points
- Net income decreased by $179 million or 6% year-over-year, primarily due to a credit reserve build.
- The Single-Family business reported a net income decrease of $97 million or 4% year-over-year.
- The provision for Single-Family credit losses was an expense of $315 million this quarter, compared to a benefit of $638 million in the prior year.
- Multifamily net income decreased by $82 million or 15% year-over-year, driven by lower non-interest income.
- The Multifamily delinquency rate increased to 38 basis points, up 17 basis points from the prior year, primarily due to delinquency in floating rate loans and small balance loans.
Q & A Highlights
Q: Can you provide more details on the factors driving the 6% year-over-year decrease in net income?
A: The decrease in net income was primarily driven by a credit reserve build this quarter compared to a credit reserve release in the prior year quarter. This was due to modest credit reserve builds in both business segments, reflecting the impact of higher mortgage rates and new acquisitions. - James Whitlinger, Interim Chief Financial Officer
Q: What contributed to the 9% year-over-year increase in net interest income?
A: The increase in net interest income was driven by continued growth in the Single-Family mortgage portfolio, which grew 2% year-over-year, and lower expenses related to debt and hedge accounting relationships. - James Whitlinger, Interim Chief Financial Officer
Q: How did the Single-Family business segment perform this quarter?
A: The Single-Family business reported net income of $2.3 billion, down 4% year-over-year. Net revenues increased by 17% to $5.1 billion, driven by an 8% increase in net interest income and higher non-interest income due to impacts from interest rate risk management activities. - James Whitlinger, Interim Chief Financial Officer
Q: What is the current outlook for house prices?
A: Our current house price forecast assumes an increase of 0.6% over the next 12 months and 0.5% over the subsequent 12 months. This is a slight change from our previous forecast, which assumed 0.2% and 0.6% growth over the next 12 and subsequent 12 months, respectively. - James Whitlinger, Interim Chief Financial Officer
Q: Can you elaborate on the performance of the Multifamily business segment?
A: The Multifamily segment reported net income of $481 million, down 15% year-over-year. This decrease was primarily driven by lower non-interest income, which declined 20% due to impacts from interest rate risk management activities and less favorable fair value changes from spreads. However, net interest income increased by 29% due to higher yields on mortgage loans and continued portfolio growth. - James Whitlinger, Interim Chief Financial Officer
Q: What were the key drivers behind the increase in the Multifamily mortgage portfolio?
A: The Multifamily mortgage portfolio increased by 5% year-over-year to $447 billion, driven by higher yields on mortgage loans due to higher interest rates and continued portfolio growth. Additionally, 95% of the portfolio was covered by credit enhancements at the end of the quarter. - James Whitlinger, Interim Chief Financial Officer
Q: How did the company perform in terms of providing affordable housing?
A: In the second quarter, we financed 212,000 home purchases, with 53% of primary home purchases being first-time homebuyers and 53% affordable to low and moderate-income families. On the Multifamily side, approximately 93% of 92,000 eligible rental units we financed were similarly affordable. - James Whitlinger, Interim Chief Financial Officer
Q: What is the current status of the Single-Family serious delinquency rate?
A: The Single-Family serious delinquency rate continued to be historically low, declining to 50 basis points at the end of the second quarter, down 6 basis points from the same period last year and 2 basis points from the previous quarter. - James Whitlinger, Interim Chief Financial Officer
Q: How has the introduction of the Uniform Mortgage-Backed Security (UMBS) impacted the market?
A: The UMBS has fostered greater liquidity and standardization in the US housing finance system. Since its inception, nearly $360 trillion of UMBS has been traded, and half of GSE issuance in the second quarter came from Freddie Mac. The UMBS now represents most of the liquidity in the agency MBS market, which is second in size only to the market for US treasuries. - James Whitlinger, Interim Chief Financial Officer
Q: What are the key financial metrics for Freddie Mac at the end of the second quarter?
A: Freddie Mac's net worth increased to $53.2 billion, representing a 27% increase year-over-year. The total mortgage portfolio was $3.5 trillion, a 2% increase year-over-year. Net income for the quarter was $2.8 billion, and net interest income was $4.9 billion, up 9% year-over-year. - James Whitlinger, Interim Chief Financial Officer
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
