Q3 2020 Federal Home Loan Mortgage Corp Earnings Call
[music].
Ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time your lines will again be placed on Nicole. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by.
Welcome to <unk> third quarter earnings Conference call.
At this time all participate in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Okay question during the session [laughter] side, one on your telephone.
If you require any further assistance. Please press star one B. Riley.
I would now like to turn the call over to your speaker today, Jeff Berkowitz, Senior Vice President and external relations and corporate Communications. Please go ahead Sir.
Thank you good morning, and thank you for joining us for a discussion are pretty much doing quarter 2020 financial results. We're joined today by our CEO, David Brickman General Counsel recorder ones will do we will see a full Chris why don't in CIO Jerry Wise.
Before we begin we'd like to point out that you're pretty.
Pretty Mac executives may make forward looking statements are based on assumptions about the company's key business drivers and other factors changes in these factors could cause the company's actual results to vary materially from its expectations description of those factors can be found in the company's quarterly report on form 10-Q filed today.
Mac executives may also discuss non-GAAP financial measures for more information about those measures. Please see our earnings press release and related materials, which are posted on the investor Relations section or Freddie Mac Dot com.
Commentary today will be limited to business and market topics as you know we cannot comment on the upcoming election public policy or legislation concerning Freddie Mac.
This call is being recorded and a replay will soon be available on Freddie Mac Dot com. We ask that this call may not be rebroadcast or transcribed at the end of Mr. Brinkmann's prepared comments, we'll open the call for questions that pertain only to the earnings statements. We just released.
A reminder, this calls for the media and only they may ask questions with that I'll turn the call over to Freddie Mac CEO David Burke.
Thank you Jeff.
Good morning, and welcome to our third quarter earnings Conference call.
Pleasure to be speaking with you today about Freddie Mac strong performance and the work we've done to support the housing market and families affected by the pandemic.
Well, we continue to focus on stabilizing the market. We also drove important work in other areas from.
From advancing sustainable housing to making a smooth transition to a new reference rate.
As a result, we again demonstrated the vital role we play in good times and bad acting as a counter cyclical force in times of crisis, and bringing private market solutions to difficult challenges in all economic environments.
I think you'll see those themes blowing through the three topics I addressed today.
First I'll update you on our ongoing effort to provide stability during the pandemic, while we continue working to make the housing market better and more accessible.
Second I'll discuss our financial results for the quarter.
Finally, I'll preview our outlook for both single family and multifamily markets over the near to medium term.
First let me provide an update on pandemic related work and other actions, we've taken to stabilize and improve the housing market.
Few companies are as well positioned as Freddie Mac to blunt the housing impact was code at 19, and we continue to do just that.
Our data shows that the vast majority of Freddie Mac borrowers, we have fallen more than 60 days behind on their mortgage payments during the pandemic, 96.1% to be exact.
Having enrolled in forbearance and that figure is even higher among minority bars at 97.6%.
Since the outbreak began approximately 639000 single family borrowers have used our forbearance option.
300000 of those have already exited forbearance.
In the third quarter, nearly 100000 borrowers move directly from for parents to a payment deferral, bringing them current on their mortgage.
In the multifamily space owners are currently taking advantage of Freddie Mac Forbearance, I'm 1025 properties and as a result more than 100000 families are protected from addiction for non payment of rent.
We launched a number of online tools to help homeowners and renters get the Asus assistance they need during this difficult time I'm.
I'm pleased to note that more than 15 million families have used these resources, which can be found by visiting my home Dot Freddie Mac Dot com.
We also continue to provide lenders bar works and others Flexibilities that helps ensure the mortgage markets continued to operate well such as allowing electronic documents in lieu of employment verification and using appraisal alternatives to reduce the need for in person inspections.
All of this combined with historically low rates enabled us to purchase a record volumes, providing an unprecedented level of liquidity to families across the nation.
It's also important to note that we did this while distributing risk into the private market.
We're pleased with the results, which have helped ensure the housing market continues to be a source of strength in an otherwise troubling economy.
The housing market strike is evident in a range of economic indicators, including.
Purchase applications were up 24% year over year in the most recent reporting period.
Existing home sales rose, 9.4% in September to a seasonally adjusted annual rate of 6.54 million the highest since may of 2006.
And the Commerce Department reported Monday that despite the modest increase in September sales of new homes increased 32.1% from a year earlier.
Clearly housing has been very strong and as you'll see later in our financial reporting we have benefited from it.
We have also contributed to that strikes by enabling the mortgage market to function seamlessly.
Our pandemic related activities in the third quarter went hand in hand with the day in day out work of making or housing finance system better for everyone.
We've done this by focusing on affordability industry leadership and diversity inclusion.
We press forward on affordability in the quarter for example by announcing two additions to our multifamily impact bond offerings sustainability bonds and social bonds.
These offerings are aimed at attracting capital support economic mobility for residents and economic growth for communities consistent with Freddie Mac multifamily is long history of supporting sustainable communities through refinancing for affordable and workforce housing.
In the quarter, we continue playing our leading role in a difficult and complex transition away from my bore as an index rate an issue that I've mentioned in the past.
As a member of the federal Reserve's alternative reference rates Committee, we provide critical support for the move to the secured overnight funding rates are so for.
Over the past few months, we rolled out new so for index collateralized mortgage obligations started purchasing multifamily. So for loans continue to issue. So for index key deals and issued a new CIO for indexed single family credit risk transfer CRT deal this month.
Also we intend to roll out a new single family adjustable rate mortgage product in the fourth quarter.
The first so for index CRT transaction was significant for us and for the market.
It was one among several Freddie Mac crts offerings coming after a pandemic pause on those offerings by both geographies.
Freddie Mac's third quarter issuances, many of which were upsize due to strong investor demand demonstrated Freddie Mac's ongoing commitment to CRT and Reenergize the market for an asset class we pioneered.
Also in the third quarter, we continue to address the troubling disparities and economic outcomes, we see across our nation. It is abundantly clear to me and I think to many of you and others throughout our industry that we need to rise to the challenge to do more to counteract the heartbreaking gap between black and white.
Americans and homeownership, which is currently wider than it was in 1960.
As written our mission focuses on liquidity stability and appointed Bill affordability.
I believe that because circumstances have irrevocably changed in the last year, our mission should now focus on liquidity stability affordability and equity.
To achieve that goal our work generally falls into three areas first we are helping people of color enter and prosper in our industry, including at Freddie Mac for example by working with organizations to recruit train and play students from historically black colleges and universities internships with mortgage and real estate.
Companies.
Also partner with the Hispanic scholarship fund to leverage their career services for sourcing diverse talent, which helped drive a 10% increase in Hispanic applicants for our college analysts programs.
Second we are helping more businesses owned by people of color Prosper for instance by actively growing and developing our diverse supplier pipelines through our supplier Academy, a training program, which helps vendors network with company leaders.
And how to do business with Freddie Mac and grow their business not only with us, but with other companies as well.
More than 40 diverse suppliers have graduated from our supplier Academy and to date nearly 40% of them have competitively bid and earned a contract with us post graduation.
We're also bringing diverse suppliers into our capital markets transactions through a broad based program that provides training access and opportunities to win business.
To date, we've conducted more than 50 trainings with diverse suppliers to help enhance the knowledge of our programs.
We've also engaged for different diverse suppliers to serve us as underwriters on various multifamily transactions this quarter.
And Freddie Mac was among the first firms to use a diverse supplier as a co lead underwriter on our debt issuance index to so for.
And finally, we are focused on helping more families of color achieve homeownership, which is at the core of what we do this.
This includes through credit smart, our multi lingual financial education curriculum designed to help consumers build and maintain better credit and make better financial decisions.
We're also aggressively supporting and promoting our suite of very successful low down payment loan product products, including our home possible and home loan mortgages and HFSA advantage designed to work in tandem with state housing Finance agency programs to support homeownership.
We're also exploring alternative credit for Underbanked populations and renters, and we're working with a wide range of business partners and nonprofit organizations engaged in activities and in communities across the country to promote homeownership and community revitalization.
And we also are supporting innovative research targeted toward lowering housing costs and increasing housing supply.
This is just a sample of the many initiatives we are working to working on as part of our broad based efforts to advance the cause of equality.
Now, let's look at our financial and business results in the third quarter that saw a historic single family volume and above average multifamily activity.
Freddie Mac earned comprehensive income of $2.4 billion in the quarter up 26% or 0.5 billion from the prior quarter, primarily driven by higher net revenues from the company's growing guarantee portfolios.
Upfront fee recognition and new multifamily business.
Credit related expense declined compared to the second quarter.
Provision for credit losses was lower as realized house price growth in the third quarter was robust and estimates of expected credit losses related to the COVID-19 pandemic have started to stabilize.
Credit costs related to portfolio growth and a lower benefit from expected credit enhancement recoveries also affected credit related expenses.
Total equity increased to $13.9 billion up from $11.4 billion at the end of the second quarter, representing a 22% increase in our capital.
It's important to note that this level of capital puts Freddie Mac in a very solid financial position.
It isn't nothing that we would not have needed to draw in any of the nine hypothetical quarters contemplated by the last published Dodd Frank stress tests, most plausible severely adverse scenario.
As I said earlier single family had a record quarter, new business activity was $337 billion, reflecting unprecedented home purchase and refinancing activity, while new multi family business activity was $18 billion.
The single family guarantee portfolio grew 11% year over year and multi families portfolio grew by 14% percent, despite a challenging environment for rental properties.
Credit quality remains strong for both single family and multifamily new business activity with weighted original average loan to value ratios of 71% and 66% respectively.
While still low by historic standards, the serious delinquency rate for single family increased to 3.04% from 2.48% in the prior quarter.
Driven by loans in forbearance due to the pandemic.
The multifamily delinquency rates, which does not include loans in forbearance increased from the prior quarter, but the rate remained very low at 0.13%.
Most importantly in the quarter, we continued to execute on our mission, making home possible 1.3 million times.
That includes funding more than 1.1 million single family purchase and refinance loans, including more than 137000 to first time homebuyers.
This is the highest number of first time homebuyers, we served since 2010.
And we've helped multifamily borrowers financed more than a 185000 units, 96% of which were affordable to renters, making 120% of area median income or less.
Turning to our outlook for the housing market, while much uncertainty remains we expect the fundamentals of the single family market to remain strong while the multifamily market will likely see modest weakness over the short term.
For single family, we expect mortgage rates to remain near the record lows for the remainder of this year.
The refining segment of the market remains strong accounting for about two thirds of our forecast is 3.6 trillion dollars in total originations for 2020.
And we're expecting purchases to increase to about 1.4 trillion dollars, resulting in over 6 million total home sales for this year.
We've also for we're also forecasting 2020 house price growth to remain strong with an annualized rate of 5.5%.
Sure short term on the multifamily side, they can see rates could increase as much as two percentage points by year end and rents may declined by 1.2% to 1.7%.
However, forecasts are generally improving as more data becomes available.
We expect the multifamily market to continue to do well in the medium to long term, but that ultimately will depend on resumption of economic growth.
Over the core driver is the same as it has been for some time inadequate supply and the rising cost of single family homes, which when it access to homeownership and drive demand in the rental market.
To ensure that all families can find quality affordable housing, especially vulnerable low income families. We must ensure the multifamily lending market remains liquid and stable through the current economic crisis as.
As other debt providers have stepped back from the multifamily market. Freddie Mac has stepped forward. This is precisely the counter cyclical support borrowers need from us and for which we are almost uniquely suited.
So while this future may be uncertain I have complete confidence in Freddie Mac's ability to meet these challenges that confidence flows from the many strengths of this company.
Not the least of which is an employee base utterly committed to its mission, providing liquidity stability and affordability.
And equity to borrowers renters and lenders in the us housing finance system.
Our response to the pandemic showed we're an organization that can rapidly adapt to the realities of the day, while continue to prepare for the future.
Im very proud of our performance and ready for our next chapter as we work to exit conservatorship.
With that I'd be happy to take your questions.
Mike can you thought.
Star one on your.
Hello.
We were flying.
Yes.
Okay.
Yes.
Hello, Herman Lottery public policy all marketplace.
Please keep in mind will become callable Kim.
Okay.
Well first question comes from the line of both.
Good morning.
Hi, Thanks for taking my call.
Our pleasure.
Hi, a couple related questions.
One of the about the.
Under under Tim you talked about investment gain.
Listeners with 50% since the.
But to clarify how that happened.
Sure Happy to you are going to have Chris loan to address that and there's investment gains primarily came out of our multifamily business, which was.
What you saw was a return.
I will say that business and therefore, the the investment gains as a result that accrued there. So is primarily multifamily driven but also out of the single family as well you saw pretty significant return.
To those markets from a from a pricing perspective and.
Therefore, it thats the result.
Okay, and then maybe it's related a little bit Oh.
For those that your net interest income.
You talked about higher upfront fees.
Being recognized what does that refer to.
Well a lot of that has to do with the amortization of the portfolio as you can see in the market the refinance volumes and volumes generally are in near record levels.
When you look at you therefore see as high liquidation rates that are accruing through our through our portfolio as a result of those high liquidation rates. What you realize is faster amortization of fees that were paid on those loans versus what would have been modeled into those loans.
Our normalized basis, so it really has to do with a.
Much higher liquidation rate, which allows us to realize those fees and a much quicker manner.
We're here, we're talking about the LLP is.
Yes.
Okay.
I think that those two questions and thanks for taking the call.
Thank you.
Okay.
Okay.
Stalwart.
Your last question comes from the line Bob.
Formal.
Good morning.
You mentioned.
Thank you the credit risk transfer.
[music].
How has that gone over with investors lately.
Lots of off the Mark because of the pandemic.
That those structures are not as appealing as they were a year.
How are you right now.
Especially since you are.
Our departure and you may have seen two was to shoot the market altogether.
Yes.
For us we just issued our DNA five transaction that price can closed in October and.
We had the best execution as and the lower spreads than we've had since the pandemic began and I know had.
I'll say dozens of investors participate all classes were oversubscribed and got we viewed as very favorable execution.
You compared to a year ago and I'd have to.
Go back and see where exactly we were a year ago. We see continued improvement in that market over the last several months and we're very comfortable with where we see CRT spreads now and where we think we can execute on credit risk transfer transactions I would just highlight while there was a hiatus in the security market around since the pandemic and.
April may of what we've seen is that continue to build back to pre cove its strength and as David said, we are seeing executions, Adam at or near all time tights, new investor interest strong interest demand over subscription so clearly.
Clearly still remains a very strong interest in these structures and in these products.
Hi.
Okay. Thank you very much.
You're welcome. Thank you for the question.
Okay.
Good question Paul.
Hello.
Yes Hello.
Do you have any closing remarks.
No just thank everybody for joining us.
This concludes todays conference call you may now disconnect.
Thanks.
[music].
[music].
[music].
Ladies and gentlemen, thank you for standing by.
And welcome to <unk> third quarter earnings Conference call.
Okay, Great and also knowing that.
The speakers presentation, there will be a question and answer session.
Okay Clifton during the facility will need.
Oh, one on your telephone.
If you require any further assistance please press star zero.
I would now like to turn the call but to your speaker today.
Nicholas Senior Vice President and all the Nations and corporate Communications. Please go ahead Sir.
Thank you good morning, and thank you for joining us for a discussion are pretty much good quarter.
20 financial results, we're joined today by our CEO, David Brickman General Counsel Ricardo <unk> CFO, Chris why don't see any O. Jerry watch.
Before we begin we'd like to point out the Freddie.
Pretty Mac executives may make forward looking statements are based on assumptions about the company's key business drivers and other factors changes in these factors could cause the company's actual results to vary materially from its expectations. A description of those factors can be found in the company's quarterly report on form 10-Q filed today.
Mac executives may also discuss non-GAAP financial measures for more information about those measures. Please see our earnings press release and related materials, which are posted on the Investor Relations section of Freddie Mac Dot com.
Our commentary today will be limited to business and market topics. As you know we cannot comment on the upcoming election public policy or legislation concerning Freddie Mac.
This call is being recorded and a replay will soon be available on Freddie Mac Dot com. We ask that this call may not be rebroadcast or transcribed at the end of Mr. Britt Pence prepared comments, we'll open the call for questions that pertain only to the earnings statements. We just released.
A reminder, this calls from the media and only they may ask questions with that I'll turn the call over to Freddie Mac CEO David Berman.
Thank you Jeff.
Good morning, and welcome to our third quarter earnings Conference call.
Pleasure to be speaking with you today about Freddie Mac strong performance and the work we've done to support the housing market and families affected by the pandemic.
Well, we continue to focus on stabilizing the market. We also drove important work in other areas from.
From advancing sustainable housing to making a smooth transition to a new reference rate.
As a result, we again demonstrated the vital role we play in good times and bad acting as a countercyclical force in times of crisis, and bringing private market solutions to difficult challenges in all economic environments.
I think you'll see those themes woven through the three topics I address today.
First I'll update you on our ongoing effort to provide stability during the pandemic, while we continue working to make the housing market better and more accessible.
Second I'll discuss our financial results for the quarter.
And finally, I'll preview our outlook for both single family and multifamily markets over the near to medium term.
First let me provide an update on pandemic related work and other actions, we've taken to stabilize and improve the housing market.
Few companies are as well positioned as Freddie Mac to blunt the housing impact was COVID-19, and we continue to do just that.
Our data shows that the vast majority of Freddie Mac borrowers, we have fallen more than 60 days behind on their mortgage payments during the pandemic.
96.1% to be exact.
I've been rolled in forbearance and that figure is even higher among minority borrowers at 97.6%.
[noise] since the outbreak began approximately 639000 single family borrowers have used our forbearance option.
300000 of those have already exited forbearance.
In the third quarter, nearly 100000 borrowers move directly from for parents to a payment deferral, bringing them current on their mortgage.
In the multifamily space owners are currently taking advantage of Freddie Mac forbearance on 1025 properties and as a result more than 100000 families are protected from addiction for non payment of rent.
We launched a number of online tools to help homeowners and renters kept the Asus assistance they need during this difficult time.
I'm pleased to note that more than 15 million families have used these resources, which can be found by visiting my home Dot Freddie Mac Dot com.
We also continue to provide lenders borrower and others Flexibilities that helps ensure the mortgage markets continue to operate well such as allowing electronic documents approvals employment verification and using appraisal alternatives to reduce the need for increased and inspections.
All of this combined with historically low rates enabled us to purchase a record volumes, providing an unprecedented level of liquidity to families across the nation.
It's also important to note that we did this while distributing risk into the private market works.
We're pleased with the results, which would help ensure the housing market continues to be a source of strength in an otherwise troubling economy.
The housing market strike is evident in a range of economic indicators, including.
Purchase applications were up 24% year over year in the most recent reporting period.
Existing home sales rose, 9.4% in September to a seasonally adjusted annual rate of 6.54 million the highest since may of 2006.
And the Commerce Department reported Monday that despite the modest increase in September sales of new homes increased 32.1% from a year earlier.
Clearly housing has been very strong.
And as you'll see later in our financial reporting we have benefited from it.
We have also contributed to that strength by enabling the mortgage market to function seamlessly.
Our pandemic related activities in the third quarter went hand in hand with the day in day out work of making our housing finance system better for everyone.
We've done this by focusing on affordability industry leadership and diversity inclusion.
We press forward on affordability in the quarter for example by announcing two additions to our multifamily impact bond offerings sustainability bonds and social bonds.
These offerings are aimed at attracting capital support economic mobility for residents and economic growth for communities consistent with Freddie Mac multifamily is long history of supporting sustainable communities through his financing for affordable and workforce housing.
In the quarter, we continue playing our leading role in a difficult and complex transition away from LIBOR as an index rate and issues that I've mentioned in the past.
As a member of the federal Reserve's alternative reference rates Committee, we provide critical support for the move to the secured overnight funding rates are so for.
Over the past few months, we rolled out new so for index collateralized mortgage obligations started purchasing multifamily. So for loans continue to issue. So for index key deals and issued a new CIO for index single family credit risk transfer CRT deal this month.
Also we intend to roll out a new single family adjustable rate mortgage product in the fourth quarter.
The first so for index CRT transaction was significant for us and for the market.
It was one among several Freddie Mac CRT offerings coming after a pandemic pause on those offerings by both geographies.
Freddie Mac's third quarter issuances, many of which were upsize due to strong investor demand demonstrated Freddie Mac's ongoing commitment to CRT and Reenergize the market for an asset class we pioneered.
Also in the third quarter, we continue to address the troubling disparities in economic outcomes, we see across our nation.
Abundantly clear to me and I think to many of you and others throughout our industry that we need to rise to the challenge to do more to counteract the heartbreaking gap between black and White Americans at home ownership, which is currently wider than it was in 1960.
As written our mission focuses on liquidity stability and appointed Bill affordability.
I believe that because circumstances have irrevocably changed in the last year. Our mission should now focused on liquidity stability affordability and equity.
To achieve that goal our work generally falls into three areas first we are helping people of color enter and prosper in our industry, including a Freddie Mac for example by working with organizations to recruit train and play students from historically black colleges and universities internships with mortgage and real estate.
Companies.
We also partner with the Hispanic scholarship fund to leverage their career services for sourcing diverse talent, which helped drive a 10% increase in Hispanic applications for our college analyst programs.
Second we are helping more businesses owned by people of color Prosper for.
For instance by actively growing and developing our diverse supplier pipeline through our supplier Academy, a training program, which helps vendors network with company leaders learn how to do business with Freddie Mac and grow their business not only with us, but with other companies as well.
More than 40 diverse suppliers have graduated from our supplier Academy and to date nearly 40% of them have competitively bid and earned a contract with us post graduation.
We're also bringing diverse suppliers into our capital markets transactions through a broad based program that provides training access and opportunities to win business.
To date, we've conducted more than 50 trainings with diverse suppliers to help enhance the knowledge of our programs.
We've also engaged for different diverse suppliers to serve us as underwriters on various multifamily transactions this quarter.
And Freddie Mac was among the first firms to use a diverse supplier as a co lead underwriter on our debt issuance index to so for.
And finally, we are focused on helping more families of color achieve homeownership, which is at the core of what we do.
This includes through credit smart, our multi lingual financial education curriculum designed to help consumers build and maintain better credit and make better financial decisions.
We're also aggressively supporting and promoting our suite of very successful low down payment loan products, including our home possible and home loan mortgages and HFSA advantage designed to work in tandem with state housing Finance agency programs to support homeownership.
We're also exploring alternative credit for Underbanked populations and renters, and we're working with a wide range of business partners and nonprofit organizations engaged in activities and in communities across the country to promote homeownership and community revitalization.
And we also are supporting innovative research targeted toward lowering housing costs and increasing housing supply.
This is just a sample of the many initiatives we are working to working on as part of our broad based efforts to advance the cause of equality.
Now, let's look at our financial and business results in the third quarter that saw a historic single family volume and above average multifamily activity.
Freddie Mac and comprehensive income of $2.4 billion in the quarter up 26% or 0.5 billion from the prior quarter, primarily driven by higher net revenues from the company's growing guarantee portfolios.
Upfront fee recognition and new multifamily business.
Credit related expense declined compared to the second quarter.
Provision for credit losses was lower as realized house price growth in the third quarter was robust and estimates of expected credit losses related to the COVID-19 pandemic have started to stabilize.
Credit costs related to portfolio growth and a lower benefit from expected credit enhancement recoveries also affected credit related expenses.
Total equity increased to $13.9 billion up from 11.4 billion at the end of the second quarter, representing a 22% increase in our capital.
It's important to note that this level of capital puts Freddie Mac in a very solid financial position.
It is not that we would not have needed to draw in any of the nine hypothetical quarters contemplated by the last published Dodd Frank stress tests, most plausible severely adverse scenario.
As I said earlier single family had a record quarter, new business activity was $337 billion, reflecting unprecedented home purchase and refinancing activity, while new multifamily business activity was $18 billion.
The single family guarantee portfolio grew 11% year over year and multifamily portfolio grew by 14% percent, despite a challenging environment for rental properties.
Credit quality remains strong for both single family and multifamily new business activity with weighted original average loan to value ratios of 71% and 66% respectively.
While still low by historic standards, the serious delinquency rate for single family increased to 3.04% from 2.48% in the prior quarter.
Driven by loans in forbearance due to the pandemic.
The multifamily delinquency rates, which does not include loans in forbearance increased from the prior quarter, but the rate remained very low at 0.13%.
Most importantly in the quarter, we continued to execute on our mission, making home possible 1.3 million times.
That includes funding more than 1.1 million single family purchase and refinance loans, including more than 137000 to first time homebuyers.
This is the highest number of first time homebuyers, we served since 2010.
And we've helped multifamily borrowers finance more than 185000 units.
96% of which were affordable to renters, making 120% of area median income or less.
Turning to our outlook for the housing market, while much uncertainty remains we expect the fundamentals of the single family market to remain strong while the multifamily market will likely see modest weakness over the short term.
For single family, we expect mortgage rates to remain near the record lows for the remainder of this year.
The refinance segment of the market remains strong accounting for about two thirds of our forecasted 3.6 trillion dollars in total originations for Twentytwenty.
And we're expecting purchases to increase to about 1.4 trillion dollars, resulting in over 6 million total home sales for this year.
We've also Fourk. We're also forecasting 2020 house price growth to remain strong with an annualized rate of 5.5%.
Sure short term on the multifamily side, they can see rates could increase as much as two percentage points by year end and rents may declined by 1.2% to 1.7%.
However, forecasts are generally improving as more data becomes available.
We expect the multifamily market to continue to do well in the medium to long term, but that ultimately will depend on resumption of economic growth.
Over the core driver is the same as it has been for some time and adequate supply and the rising cost of single family homes, which limit access to home ownership and drive demand in the rental market.
To ensure that all families can find quality affordable housing, especially vulnerable low income families. We must ensure the multifamily lending market remains liquid to stabilize through the current current economic crisis.
Other debt providers have stepped back from the multifamily market. Freddie Mac has stepped forward. This is precisely the counter cyclical support borrowers need from us and for which we are almost uniquely suited.
So all those future may be uncertain I have complete confidence in Freddie Mac's ability to meet these challenges that confidence flows from the many strengths of this company.
Not the least of which is an employee base utterly committed to its mission, providing liquidity stability and affordability.
And equity to borrowers renters and lenders in the us housing finance system.
Our response to the pandemic showed we're an organization that can rapidly adapt to the realities of the day well continue to prepare for the future.
Im very proud of our performance and ready for our next chapter as we work to exit conservatorship.
With that I'd be happy to take your questions.
And then my last question you will need to press star one on your telephone.
To the slides.
Yes.
Also as a reminder, Mr. Blakeman cannot comment letters of public policy.
Places that.
Please standby.
Hi, James.
Well first question comes from the line of both Paul Paul.
The final.
Hi, Thanks for taking my call.
Our pleasure.
Hi, a couple related questions.
One is about the.
Under under Tim you talked about investment gain.
Listen to that 50%.
But to clarify how that happened.
Sure happy you're going to have Chris loan trust that those investment gains primarily came out of our multifamily business, which was.
What you saw was a return.
Mostly in that business and therefore, the the investment gains as a result that accrued there. So is primarily multifamily driven but also out of the single family as well you saw pretty significant return.
To those markets from a from a pricing perspective.
Therefore that Thats the result.
Okay, and then maybe it's related little bit.
For those that your net interest income.
You talked about higher upfront fees.
That being recognized what does that refer to.
Well a lot of that has to do the amortization of the portfolio as you can see in the market the refinance volumes and volumes generally are a near.
Near record levels.
You, therefore see as high liquidation rates that are growing through our through our portfolio. As a result of those high liquidation rates. What you. What you realize is faster amortization of fees that were paid on those loans versus what would have been modeled into those loans.
Normalized basis, so it really has to do with a.
Much higher liquidation rate, which allows us to realize those fees and a much quicker manner.
We're here, we're talking about the LLP is.
Yes.
So I think that those two questions, but thanks for taking the call.
Thank you.
Okay. Okay.
Hi, Paul.
Your next question comes from the line of Bob single curve.
Yes.
Good morning.
You mentioned.
Thank you the credit risk transfer.
How has that gone over with investors lately.
Lots of talk in the market.
And.
That those structures are not as appealing as they were.
Hi, how are you.
France and especially.
Our.
Our our Fannie Mae absolute who is to shoot the market altogether.
Yes.
For us we just issued our our DNA five transaction that price can closed in October and.
We had the best execution as well.
Lower spreads than we've had since the pandemic began at I know had.
I'll say dozens of investors participate all classes were oversubscribed and got what we viewed as very favorable execution.
You compared to a year ago and I'd have to.
Go back and see where exactly we were a year ago. We see continued improvement in that market over the last several months and we're very comfortable with where we see CRT spreads now and where we think we can execute on credit risk transfer transactions I would just highlight while there was a hiatus in the security market around since the pandemic and.
April may of what we've seen is that continuing to build back to pre cove its strength and as David said, we are seeing executions at at or near all time highs tights, new investor interest strong interest demand over subscription so.
Clearly still remains a very strong interest in these structures and in these products.
Right. Okay. Thank you very much.
You're welcome. Thank you for the question.
Okay blocking question Paul Hello.
Yes, no further questions at this time.
You have any closing remark.
No just thank everybody for joining us.
This concludes today's conference call you may now disconnect.