Q4 2020 Federal Home Loan Mortgage Corp Earnings Call
[music].
Okay.
Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, please stay on the lines.
[music].
Good morning, and thank you for joining us for our presentation of Freddie Macs fourth quarter and full year 2020 financial results I'm, Jeffrey Markowitz Senior Vice President of external relations and corporate.
<unk>, we're joined today by our CFO, Chris loud.
Before we begin we'd like to point out that during the call. Mr. Lau may make forward looking statements based on assumptions about the company's key business drivers and other factors.
<unk> and these factors could cause the company's actual results to materially vary from its expectations.
A description of those factors can be found in the company's annual report on form 10-K filed today.
Mr. <unk> 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 public policy or legislation concerning Freddie Mac.
This call is recorded and a replay will soon be available on Freddie Mac Dot com, we ask that this called not be rebroadcast or transcribed with that I will turn the call over to Freddie Mac CFO, Chris loud.
Good morning, and thank you for your interest in Freddie Mac.
During this mornings call I will discuss our financial and business results.
Let's start our 'twenty 'twenty review by noting that Freddie Mac continued to serve the important role for which it was founded.
We delivered record liquidity of 1.2 trillion dollars at a critical time.
Helping 4.6 million families purchase refinance or rent a home.
A significant increase compared to the $2 6 million, we supported in 2019.
He highlights in 'twenty and 'twenty include.
Our record refinancing activity helped reduce mortgage payments for $2 7 million families.
First time homebuyers represented 46% of the $1 1 million homebuyers, we supported.
And now the over 800000 multiple family units, we helped finance.
96% were affordable to families, making at or below 120% of the area median income.
In addition, our support to American families joined their pandemic included <unk>.
Implementing a single family foreclosure and eviction moratorium covering more than 11 million families.
As of December 31st more than 700000 single family borrowers had entered into forbearance agreements with our Servicers.
And nearly 61% or 437000 have already exited forbearance after regaining their footing.
And even before the center for disease control eviction ban went into place we removed the threat of eviction for residents of the more than $4 6 million multifamily units, we help finance.
That protection is ongoing for nearly 100000 families covered by our multifamily for brands program.
Working closely with our Conservatory and industry partners, we are very proud of the support and these accomplishments.
Turning to our financial results Freddie Mac reported fourth quarter net income of $2 $9 billion.
Up 18% from the prior quarter.
Comprehensive income totaled $2 5 billion up 3% from the prior quarter.
This increase was driven by continued revenue growth and a release of loan loss reserves due primarily to realized house price appreciation in the fourth quarter.
Looking into more detail there was a 6% increase in net interest income from the prior quarter, which was driven by 7% growth in our single family Guaranty book.
Our fourth quarter credit related benefit totaled zero point $1 billion compared to an expense of zero point $6 billion in the prior quarter.
This was driven by realized house price appreciation in the fourth quarter.
Partially offset by a decrease in the expected credit enhancement of recoveries and a risk transfer structures as a result of increased house prices.
Turning to full year 2020, Freddie Mac reported net income of $7 3 billion, an increase of 2% or zero point $1 billion from 2019, and comprehensive income of $7 5 billion down, 3% or zero point $3 billion from 2019.
Year over year net revenues increased by 18% to $16 7 billion driven.
Driven by an increase in net interest income up 8% to $12 8 billion.
This growth was primarily due to 17% growth in the single family guarantee portfolio and.
And higher deferred fee income recognition due to faster loan prepayments as a result of the record low mortgage rates in 2020.
Net investment gains increased 122% or $1 billion to $1 8 billion.
Primarily driven by higher margins in multifamily loan commitments.
Full year credit related expense increased by $2 1 billion to $2 $3 billion in 2020.
Which was mainly due to a provision for higher expected credit losses as a result of the COVID-19 pandemic and portfolio growth.
Our full year provision was partially offset by house price appreciation in 2020, and a year over year increase in expected credit enhancement of recoveries.
Primarily from our credit risk transfer transactions.
Turning to the individual business lines, the single family business reported comprehensive income of $4 $5 billion.
4% year over year.
This was mainly driven by a 32% increase in our guaranty fee income.
Which resulted from portfolio growth in 2020.
And higher deferred fee income recognition driven by faster loan prepayments.
In addition, we realized a higher average contractual guarantee fee rate, which increased to 49 basis points in 2020 from 40 basis points in 2019.
Our single family guarantee portfolio also grew by 17% year over year to $2 three trillion.
New single family business activity increased meaningfully by 141% to 1.1 trillion dollars from the prior year.
Reflecting higher home purchase and refinance activity.
The single family serious delinquency rate increased to 264% from 0.63% in 2019, driven by loans in forbearance as a result of the COVID-19 pandemic.
During the year, we completed nearly 426000 single family workouts, including forbearance agreements and payment deferrals.
Versus 47000 in 2019.
The multifamily business reported comprehensive income of $3 2 billion for 2020 up 67% year over year.
This was mainly driven by higher investment gains of $1 $5 billion, which were primarily.
Merrily due to higher margins on multifamily loans and commitments.
We also saw a 31% increase in guarantee fee income due primarily to continued growth in the multifamily guarantee portfolio.
Our multifamily guaranteed portfolio grew 15% year over year to $312 billion in 2020 due to securitization activity of $78 billion.
We saw new business activity of $83 billion in 2020 up 6% from $78 billion in 2019.
Nearly 40% of this activity was mission driven affordable housing.
Including certain senior housing loans small balance loans manufactured housing loans and targeted affordable housing loans.
The multifamily delinquency rate increased to 16 basis points at the end of 2020 from eight basis points at the end of 2019 due to the pandemic.
At the end of 2020, we had two point or 1% of our multifamily mortgage portfolio in a forbearance based on unpaid principal balance.
Approximately 82% of these loans in forbearance are included in securitization with first loss credit enhancement provided by subordination.
Our capital markets segment had a comprehensive loss of zero point $2 billion compared to income of $1 $5 billion in 2019, primarily due to lower net interest income.
The decrease in net interest income was driven by an increase in amortization expense due to higher loan prepayments coupled with additional expense due to payments to security holders on the full monthly coupon rate when loans pay off mid month.
Finally at year end, our capital position or net worth.
Good at $16 $4 billion versus $9 1 billion in 2019.
The events of the past year have demonstrated Freddie Mac's important role and continuously supporting the housing market.
Our goal is to ensure that our mission extends well into the future for this company and those we serve.
With that thank you all for joining us today.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
[music].
[music].
Good morning, and thank you for joining us for our presentation of Freddie Mac <unk> fourth quarter and full year 2020 financial results I'm, Jeffrey Markowitz Senior Vice President of external relations and corporate communications for <unk>.
And today by our CFO, Chris loud.
Before we begin we'd like to point out that during the call I missed your line may make forward looking statements based on assumptions about the company's key business drivers and other factors change.
Changes in these factors could cause the company's actual results to materially vary from its expectations.
A description of those factors can be found in the company's annual report on form 10-K filed today.
Mr. Allow 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 public policy or legislation concerning Freddie Mac.
This call is recorded and a replay will soon be available on Freddie Mac Dot com, we ask at this call not be rebroadcast or transcribed with that I will turn the call over to Freddie Mac CFO, Chris loud.
Good morning, and thank you for your interest in Freddie Mac.
During this mornings call I will discuss our financial and business results.
Let's start our 2020 review by noting that Freddie Mac continued to serve the important role for which it was founded.
We delivered record liquidity of $1 two trillion dollars at a critical time.
Helping 4.6 million families purchase refinance or rent a home.
A significant increase compared to the $2 6 million, we supported in 2019.
Key highlights in 'twenty and 'twenty include.
Our record refinancing activity helped reduce mortgage payments for $2 7 million families.
First time homebuyers represented 46% of the $1 1 million homebuyers, we supported.
And that would be over 800000 multiple family units, we helped to finance.
96% were affordable to families, making at or below 120% of the area median income.
In addition, our support to American families joined that pandemic included.
I'm entering a single family foreclosure and eviction moratorium covering more than 11 million families.
As of December 31st more than 700000 single family borrowers had entered into forbearance agreements with our Servicers.
Nearly 61% or 437000 have already exited forbearance after regaining their footing and even before the center for disease control eviction ban went into place we removed the threat of eviction for residents of the more than $4 6 million multifamily units, we help finance.
That protection is ongoing for nearly 100000 families covered by our multifamily for brands program.
Working closely with our Conservatory and industry partners, we are very proud of the support and these accomplishments.
Turning to our financial results Freddie Mac reported fourth quarter net income of $2 $9 billion up 18% from the prior quarter.
Comprehensive income totaled $2 5 billion up 3% from the prior quarter.
This increase was driven by continued revenue growth and a release of loan loss reserves due primarily to realized house price appreciation in the fourth quarter.
Looking into more detail there was a 6% increase in net interest income from the prior quarter.
It was driven by a 7% growth in our single family Guaranty book.
Our fourth quarter credit related benefit totaled zero point $1 billion compared to an expense of zero point $6 billion in the prior quarter.
This was driven by realized house price appreciation in the fourth quarter.
Really offset by a decrease in the expected credit enhancement of recoveries and a risk transfer structures as a result of increased house prices.
Turning to full year 2020, Freddie Mac reported net income of $7 3 billion, an increase of 2% or zero point $1 billion from 2019, and comprehensive income of $7 $5 billion down.
Down, 3% or zero point $3 billion from 2019.
Year over year net revenues increased by 18% to $16 $7 billion driven by an increase in net interest income up 8% to $12 8 billion.
This growth was primarily due to 17% growth in the single family guarantee portfolio.
And higher deferred fee income recognition due to faster loan prepayments as a result of the record low mortgage rates in 2020.
Net investment gains increased 122% or $1 billion to $1 8 billion, primarily driven by higher margins in multifamily loan commitments.
Full year credit related expense increased by $2 $1 billion to $2 $3 billion in 2020.
Which was mainly due to a provision for higher expected credit losses as a result of the COVID-19 pandemic and portfolio growth.
Our full year provision was partially offset by house price appreciation in 2020, and a year over year increase in expected credit enhancement of recoveries.
Primarily from our credit risk transfer transactions.
Turning to the individual business lines, the single family business reported comprehensive income of $4 $5 billion.
4% year over year.
This was mainly driven by a 32% increase in our guaranty fee income.
Which resulted from portfolio growth in 2020.
And higher deferred fee income recognition driven by faster loan prepayments.
In addition, we realized a higher average contractual guarantee fee rate, which increased to 49 basis points in 2020 from 40 basis points in 2019.
Our single family guarantee portfolio also grew by 17% year over year to $2 three trillion.
New single family business activity increased meaningfully by 141% to 1.1 trillion dollars from the prior year.
Reflecting higher home purchase and refinance activity.
The single family serious delinquency rate increased to 264% from 0.63% in 2019, driven by loans in forbearance as a result of the COVID-19 pandemic.
During the year, we completed nearly 426000 single family workouts, including forbearance agreements and payment deferrals versus 47000 in 2019.
The multifamily business reported comprehensive income of $3 $2 billion for 2020 up 67% year over year.
This was mainly driven by higher investment gains of $1 $5 billion, which were primarily due to higher margins on multifamily loans and commitments.
We also saw a 31% increase in guarantee fee income due primarily to continued growth in the multifamily guarantee portfolio.
Our multifamily guaranteed portfolio grew 15% year over year to $312 billion in 2020 due to securitization activity of $78 billion.
We saw new business activity of $83 billion in 2020 up 6% from $78 billion in 2019.
Nearly 40% of this activity was mission driven affordable housing, including certain senior housing loans.
<unk> balance loans manufactured housing loans and targeted affordable housing loans.
The multifamily delinquency rate increased to 16 basis points at the end of 2020 from eight basis points at the end of 2019 due to the pandemic.
At the end of 2020, we had two point or 1% of our multifamily mortgage portfolio in a forbearance based on unpaid principal balance.
Approximately 82% of these loans in forbearance are included in Securitizations with first loss credit enhancement provided by subordination.
Our capital markets segment had a comprehensive loss of zero point $2 billion compared to income of $1 $5 billion in 2019, primarily due to lower net interest income.
The decrease in net interest income was driven by an increase in amortization expense due to higher loan prepayments coupled with additional expense due to payments to security holders on the full monthly coupon rate when loans pay off mid month.
Finally at year end, our capital position or net worth stood at $16 $4 billion versus $9 $1 billion in 2019.
The events of the past year have demonstrated Freddie Mac's important role and continuously supporting the housing market.
Our goal is to ensure that our mission extends well into the future for this company and those we serve.
With that thank you all for joining us today.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.