Q2 2021 Federal Home Loan Mortgage Corp Earnings Call

[music].

Thank you for standing by.

And welcome to Freddie Mac second quarter, 2021finding.

<unk> results media call.

At this time all participants are in a listen only mode.

If you require any further assistance please press star zero.

It is now my pleasure to introduce that'd be D chief administrative officer.

Jeffrey Markowitz.

Good morning, and thank you for joining us for our presentation of Freddie Mac second quarter 2021 financial results I'm drunk Markowitz Deputy Chief administrative officer. We are joined today for the first time by our new CEO, Michael Devito and by our CFO Chris loud.

Before we begin we'd like to point out that during the call Mr <unk> and Mr.

<unk> may make forward looking statements 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 materially vary from its expectations. A description of those factors can be found in the company's quarterly report on form 10-Q filed today.

Mr. Davita with Mr. Line 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.

This call is recorded and a replay will be available on Freddie Mac Dot com, we asked the call not be rebroadcast or transcribed with that I'll turn the call over to Freddie Mac CEO Michael Devito.

Good morning, and thank you for joining us I'm pleased to participate in my first earnings call for Freddie Mac.

Today I will offer some early thoughts on priorities for the firm before handing it over to our CFO, Chris <unk>, who will walk through our financials and outline some of the vital release, we provided during the pandemic.

I've engaged with Freddie Mac for nearly 3 decades, as a lender and servicer.

At this.

Freddie Mac <unk> developed great respect for the company.

So let me begin by stating that I believe strongly in the important role Freddie Mac plays in the housing market and its mission a term I used expansively.

For more than 50 years, Freddie Mac has supported this mission by providing liquidity stability and.

<unk> seeking to advance affordability through our core operations, we have many opportunities to support affordable housing to further this mission.

With a renewed focus on meeting our housing goals.

And reaching underserved markets. Additionally.

Additionally, through their financial contributions we make to too.

Time formidable housing funds importantly, I'm confident Freddie Mac can be a source of positive influence and addressing longstanding issues or fundamental fairness for people and communities of color at every income level.

This mission and these opportunities are among the main reasons I joined the firm.

Moving forward, we have several goals for our company.

First we are committed to ensuring Freddie Mac is a world class risk manager.

We have a solid foundation and talented employees to achieve these goals.

With continued focus we can demonstrate safety and soundness.

<unk> enhanced how we evaluate.

Risks.

All while broadly supporting the housing finance market through the economic cycle.

In short the better our risk management more broadly we can serve our mission even in the face of a crisis.

Second we're focused on building capital and enhancing financial performance, which is the founding.

That supports the risks we manage promotes safety and soundness and serves as an important stepping stone to our company's long term aspirations post conservatorship is.

As you are about to hear our retained earnings for this quarter have contributed meaningfully to this goal.

And finally, we're supporting.

<unk> found a developing our people.

In particular growing the next generation of leaders.

We're privileged to have a strong management team.

And our goal is to continue to develop our team as an investment in Freddie Mac strength stability industry leadership for the long run.

I look forward to sharing our progress on this work.

<unk> into your quarters.

And now I'll hand, the presentation over to our CFO Kristina.

Good morning.

I am happy to report that Freddie Mac had another strong quarter.

We earned net income of $3.7 billion.

And comprehensive income of $3.6 billion.

Increases.

Of $1.9 billion and $1.7 billion, respectively from the second quarter last year.

These increases were driven by higher net revenues and a credit reserve release, primarily in the single family segment.

Second quarter net revenues totaled $5.9 billion.

And.

An increase of 41% compared to $4.1 billion in the prior year quarter, primarily driven by higher net interest income.

Net interest income increased by 66% year over year to $4.8 billion.

This increase was driven by higher single family net interest income.

Realized house price appreciation.

<unk> and improving economic conditions drove the reserve release in the quarter, resulting in zero point $2 billion of benefit on credit related items compared to credit related expense of <unk> 7 billion for the second quarter of 2020.

Turning to our individual business segments in the single family segment net.

<unk> increased by $2.1 billion from the prior year quarter to $2.9 billion.

This increase was driven by higher net interest income primarily due to continued mortgage portfolio growth higher average guaranty fee rates and higher deferred fee income recognition.

In addition.

Net related items, including the reserve release.

Offset by a decrease of credit enhancement recoveries contributed to the increase in net income.

New business activity of $288 billion increased on strong home purchase and refinance activity compared with 232 billion.

In the second quarter of 2020.

But declined from 362 billion in the first quarter of 2021.

The single family serious delinquency rate of 186% continuous decline from the pandemic peak of 3.4% in the third quarter of 2020.

And.

Creditor single family loan workout activity helps approximately 88000 families remain in their homes, including through completed for brands agreements and 55000 payment deferrals, primarily related to the COVID-19 pandemic.

Approximately 167% of loans in the single family mortgage portfolio.

In the coil based on loan count were in forbearance as of June 32021.

Looking to multifamily the segment reported net income of nearly $824 million, an 18% decrease from $1 billion in the prior year quarter.

Lower net investment gains drove the decrease.

Portfolio, primarily due to less case certificate spread tightening and impact of lower volume.

Multifamily saw new business activity of $27 billion year to date.

A $3 billion decrease versus the prior year period, driven by increased competition and reduced loan purchase cap.

Kris multifamily mortgage portfolio increased by 12% year over year to $398 billion.

The delinquency rate, which does not include multifamily loans in forbearance was 0.15% at June 32021.

This was an increase from the second quarter last year, but down from zero point.

The <unk>, 7% at March 31, 2021.

As of June 30, approximately 94% of the multifamily mortgage portfolio was covered by credit enhancements.

On the capital front, our capital position, our net worth increased to $22.4 billion at the end of the second quarter.

That represented a 96% increase compared with the prior year quarter, and a 19% increase from <unk> 2021.

Of course, our strong financial performance is vitally important to helping us fulfill our mission of providing liquidity stability and affordability.

Our mission related highlights from the quarter.

<unk>, we supply of $306 billion of liquidity to the single family and multifamily markets in the quarter.

Our funding helped $1.2 million families purchase refinance or rent a home a significant increase compared with the $1 million, we supported in the second quarter of 2020.

Strong refinance activity.

Kept us to provide funding that reduced mortgage payments for 708000 families.

We provided support for 131001st time, homebuyers, representing 47% of home purchase loans.

And 77% of the 137000 multifamily units we finance.

<unk> were affordable to families, making at or below 80% of the area median income 97%, we're within reach of moderate income families, making at or below 120% of Ami.

Focusing on our pandemic related support.

In the last year and a half we have helped hundreds of thousands of added risk.

Homeowners and renters remain in their homes.

Helping maintain the stability of the U S housing finance system.

Overall during the pandemic, we extended up to 18 months of forbearance to more than 800000 single family borrowers approximately 209000 remained in forbearance as of June 30.

Similarly, we extended COVID-19 related for brands to more than 1400 qualifying multifamily properties protecting tenants and 135000 units from eviction from non payment of rent.

More recently, we expanded the use of interest rate reductions to help borrowers with a COVID-19 hardship reduce their.

Monthly mortgage payment.

And now I'll turn the call back over to Michael.

Thank you Chris.

Chris suggested the strong financial performance and the support of our mission. We described today are bound together.

Our mission guides, our work and provides opportunities to broadly serve the housing finance market and make.

It accessible for all.

Our financial success enables us to advance our mission to provide liquidity stability and affordability in a safe and sound manner. Thank.

Thank you again for joining us and I look forward to speaking with you again next quarter.

This concludes today's program.

Thank you for participating and you may now disconnect.

Yes.

[music].

[music].

[music].

Yeah.

Yeah.

Thank you for standing by.

And welcome to Freddie Mac second quarter 2021 financial results media call.

At this time all participants are in a listen only mode.

If you require any further assistance please press star zero.

Now my pleasure to introduce deputy Chief administrative officer.

Jeffrey Markowitz.

Good morning, and thank you for joining us for our presentation of Freddie Mac second quarter 2021 financial results.

It is Jeff Markowitz Deputy Chief administrative officer, we are joined today for the first time by our new CEO, Michael Devito and by our CFO Chris Lowery.

Before we begin we'd like to point out that during the call Mr. <unk> and Mr. <unk> may make forward looking statements 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 materially vary from its expectations. A description of those factors can be found in the company's quarterly report on form 10-Q filed today.

Mr Davita, where Mr. <unk> may also discuss non-GAAP financial measures for more information about those measures. Please see our earnings.

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 the call.

Rebroadcast or transcribed with that I'll turn the call over to Freddie Mac CEO Michael Devito.

Good morning, and thank you for joining us I'm pleased to participate in my first earnings call for Freddie Mac <unk>.

I will offer some early thoughts on priorities for the firm before handing it over to our CFO.

Chris <unk>, who will walk through our financials and outline some of the vital relief we provided during the pandemic.

I've engaged with Freddie Mac for nearly 3 decades, as a lender and servicer.

Over this time I've developed great respect for the company.

So let me begin by stating that I believe strongly.

B and the important role of Freddie Mac plays in the housing market and its mission.

Tom I used expansively.

For more than 50 years, Freddie Mac has supported this mission by providing liquidity stability and continuously seeking to advance affordability through our core operations, we have many opportunities.

<unk> affordable housing to further this mission.

First with a renewed focus on meeting our housing goals and.

And reaching underserved markets.

Additionally, through the financial contributions we make to 2 affordable housing funds importantly, I'm confident Freddie Mac can be a source of positive.

Influence and addressing longstanding issues of fundamental fairness for people and communities of color at every income level.

This mission and these opportunities are among the main reasons I joined the firm.

Moving forward, we have several goals for our company.

First.

First we are committed to ensuring Freddie Mac is a world class risk manager.

We have a solid foundation and talented employees to achieve this goal.

With continued focus we can demonstrate safety and soundness and continuously enhance how we evaluate risk.

All while broadly supporting the housing finance market.

The economic cycle.

In short the better our risk management and more broadly we can serve our mission even in the face of a crisis.

Second we're focused on building capital and enhancing financial performance, which is the foundation that supports the risks we manage promotes safety and soundness.

Through and serves as an important stepping stone to our company's long term aspirations post conservatorship.

As you are about to hear our retained earnings for this quarter have contributed meaningfully to this goal.

And finally, we're supporting and developing our people and.

In particular growing the next generation of leaders.

We're privileged to have a strong management team.

And our goal is to continue to develop our team as an investment in Freddie Mac strength stability industry leadership for the long run.

I look forward to sharing our progress on this work in future quarters.

And now I'll hand, the presentation over to our CFO Chris.

Tom.

Good morning.

I am happy to report that Freddie Mac had another strong quarter.

We earned net income of $3.7 billion.

And comprehensive income of $3.6 billion.

Increases of $1.9 billion and $1.7 billion, respectively from the second.

Over last year.

These increases were driven by higher net revenues and a credit reserve release, primarily in the single family segment.

Second quarter net revenues totaled $5.9 billion an.

An increase of 41% compared to $4.1 billion in the prior year quarter.

Primarily driven by higher net interest income.

Net interest income increased by 66% year over year to $4.8 billion.

This increase was driven by higher single family net interest income.

Realized house price appreciation and improving economic conditions drove the reserve release in the quarter, resulting in <unk>.

Quarter $2 billion of benefit on credit related items compared to credit related expense of <unk> 7 billion for the second quarter of 2020.

Turning to our individual business segments in the single family segment net income increased by $2.1 billion from the prior year quarter to $2.9 billion.

Yeah.

This increase was driven by higher net interest income primarily due to continued mortgage portfolio growth higher average guaranty fee rates and higher deferred fee income recognition.

In addition credit related items, including the reserve release.

Offset by a decrease.

Zero credit enhancement recoveries.

Contributed to the increase in net income.

New business activity of $288 billion, Inc.

Increased on strong home purchase and refinance activity compared with $232 billion in the second quarter of 2020, but declined from 362 billion.

<unk> in the first quarter of 2021.

Single family serious delinquency rate of 186% continued its decline from the pandemic peak of 3.4% in the third quarter of 2020.

And in the quarter single family loan workout activity helps approximately 88000 family.

Families remain in their homes, including through completed for brands agreements and 55000 payment deferrals, primarily related to the COVID-19 pandemic.

Approximately $1.6 7% of loans in the single family mortgage portfolio based on loan count were in forbearance as of June 32020.

Looking to multifamily the segment reported net income of nearly $824 million.

An 18% decrease from $1 billion in the prior year quarter.

Lower net investment gains drove the decrease primarily due to less case certificate spread tightening and impact of lower <unk>.

Volume.

Multifamily saw new business activity of $27 billion year to date.

$3 billion decrease versus the prior year period, driven by increased competition and reduced loan purchase cap.

The multifamily mortgage portfolio increased by 12% year over year to 398.

Billion.

The delinquency rate, which does not include multifamily loans in forbearance was 0.15% at June 32021.

This was an increase from the second quarter last year, but down from 0.17% at March 31.2021.

As of June 30.

Approximately 94% of the multifamily mortgage portfolio was covered by credit enhancements.

On the capital front, our capital position, our net worth increased to $22.4 billion at the end of the second quarter.

That represented a 96% increase compared with the prior year quarter.

And a 19% increase from <unk> 2021.

Of course, our strong financial performance is vitally important to helping us fulfill our mission of providing liquidity stability and affordability.

Submission related highlights from the quarter.

We supply of $306 billion of liquidity to the single.

And multifamily markets in the quarter.

Our funding helped $1.2 million families purchase refinance or rent a home a significant increase compared with the $1 million, we supported in the second quarter of 2020.

Strong refinance activity helped us to provide funding that reduced mortgage payments for 708.

Thousands of families.

We provided support for 131001st time, homebuyers, representing 47% of home purchase loans.

And 77% of the 137000 multifamily units, we financed were affordable to families, making at or below 80%.

<unk> family area median income 97%, we're within reach of moderate income families, making at or below a 120% of Ami.

Focusing on our pandemic related support in.

In the last year and a half we have helped hundreds of thousands of added risk homeowners and renters remain in their homes, while helping maintain the stability.

<unk> is the U S housing finance system.

Overall during the pandemic, we extended up to 18 months of forbearance to more than 800000 single family borrowers.

Approximately 209000 remained in forbearance as of June 30.

Similarly, we extended COVID-19 related for brands to more than.

<unk> 1400 qualifying multifamily properties protecting tenants and 135000 units from eviction from nonpayment of rent.

More recently, we expanded the use of interest rate reductions to help borrowers with a COVID-19 hardship reduce their monthly mortgage payment.

And now I will turn the call back over.

Over to Michael.

Thank you Chris as Chris suggested the strong financial performance and the support of our mission. We described today are bound together.

Our mission guides, our work and provides opportunities to broadly serve the housing finance market and make it accessible for all.

Our financial success.

Enables us to advance our mission to provide liquidity stability and affordability in a safe and sound manner. Thank.

Thank you again for joining us and I look forward to speaking with you again next quarter.

This concludes today's program.

Thank you for participating and you may now disconnect.