Q4 2021 Federal Home Loan Mortgage Corp Earnings Call
Good morning, and thank you for joining us for our presentation of Freddie Mac's first quarter and full year 2021 financial results and Jeff Markowitz, Deputy CIO and SVP of external relations and corporate.
Communications, we are joined today by our CEO , Michael Devito by our CFO , Chris Lown.
Before we begin we'd like to point out that during the call. Mr. <unk> and Mr. Allowed 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-K filed today you will find the 10-K earnings press release and related materials posted on the Investor Relations section of Freddie Mac Dot com.
This call is recorded and a replay will soon be available on Freddie Mac Dot com, we ask that the call might be rebroadcast or transcribed with that I will turn the call over to Freddie Mac CEO Michael Devito.
Good morning, and thank you for joining us to review another strong year for Freddie Mac.
Today I will briefly highlight the progress we've made on our strategic priorities in 2021.
And offer some thoughts on what we expect in 2022.
And our CFO , Chris <unk> will walk you through our financials.
So let me begin with a quick recap of our progress last year.
Freddie Mac's mission has long been understood is delivering liquidity stability and affordability to the housing market.
As I've noted in prior calls we interpret that mission expansively to meet the country's broader housing needs in all economic environments.
That work includes.
Hansen liquidity within the mortgage and capital markets stabilizing the housing market and keeping families in their homes throughout the economic cycle.
Working with an array of housing market participants to promote greater access to supply of affordable and sustainable homes throughout the country.
Promoting greater equity in housing.
<unk> lenders of all sizes better serve their communities.
Integrating environmental social and governance strategies into our business and operations.
In short our mission is to make home possible for millions of renters and borrowers across the nation.
This is the overarching purpose of all our efforts in everything we do is in further in southern.
Last year I set out three pillars that support our mission delivering results practicing risk management excellence and growing our talent.
I'd like to take a moment to highlight some of the progress we've made with respect to each of those pillars over the last year.
Let me first begin with the strong results we delivered in 2021.
Chris Lown will go into more depth in a few minutes, but the headline numbers are worth noting here Fred.
Freddie Mac earned net and comprehensive income of $12 1 billion and $11 6 billion respectively in 2021.
This significantly exceeded our very strong 2020 performance.
Our earnings helped bring the company's total equity to $28 billion.
71% greater than our net worth at year end 2020.
I should also say a word about the importance of building capital and the integral relationship. It has on our mission.
Capital is essential both as the backstop for the risks we assume it's supporting our mission.
And to signal safety and soundness taxpayers are partners in the financial markets.
We remain under capitalized and our path to a stronger capital position is through consistently solid financial performance.
To achieve that performance, we must demonstrate relentless focus on all aspects of our business.
Second we practice solid risk management in 2021.
For example, our servicer outreach and loss mitigation efforts combined with improving economic conditions dramatically reduce delinquent loans in our portfolio.
Our 2021 single family serious delinquency rate declined to 1.12%.
And our multifamily delinquency rate dropped to 0.08% at year end.
Far below their respective pandemic peaks of 3.0 of 4% and 0.17%.
And third we are growing talent by building a strong leadership team and supporting a culture, where individuals from all backgrounds, who do things the right way can succeed.
We often see the support Materializing awards and recognition for example, the human rights campaign, just named Freddy Mac, a best place to work for LGBTQ plus equality.
And gave our company a perfect score on its corporate equality index.
It was the 13th consecutive time, we've earned the award since 2010.
As I said the purpose of everything we do is ultimately to make home possible for owners and renters.
Our earnings increased capital focus on risk management and committed teams served this mission and the nation well in 2021.
We helped nearly 5 million families by refinance or rent a home last year.
We financed nearly $1 4 million purchases, including 554000 for first time homebuyers.
We enabled $2 9 million households to lower their monthly mortgage payments are received more favorable terms through refinancing.
And of the 655000 rental units, we financed last year.
94% were affordable to renters, earning 120% or less of area median income.
We also continued our efforts to help families wrestling with the effects of the global pandemic remain in their homes.
Last year 317000 single family borrowers received a forbearance deferral or other relief from a Freddie Mac servicer.
Since the earliest days of the pandemic in 2020, approximately 858000 homeowners have entered into a forbearance agreement with our Servicers.
And we have helped more than 700000 get back on their feet through the relief I mentioned earlier.
Multifamily borrowers in renters also benefited from Freddie Mac's pandemic forbearance programs.
More than 136000, renters and properties subject to a forbearance agreement receive protection from eviction for nonpayment of rent over the course of the pandemic.
Approximately 042 percent of loans in our multifamily portfolio remained in the COVID-19 related forbearance as of December 31.
Mark decrease from two 1% at the end of 2020.
While we put our existing tools to work in support of our mission in 2021, we continue to develop new ones that help homebuyers and renters access quality sustainable housing.
In August we expanded our home renovation loan offering with choice Reno Express mortgages. This single family offering helps homebuyers in homeowners reduce their out of pocket costs, the more affordable long terms and using credit cards or unsecured financing when making small scale renovations and <unk>.
Remember our multifamily division created a program to help renters build credit by reporting on time rent payments to the three credit bureaus.
Early results are promising by year end 2021 more than 73000 tenant households had been offered this program across 284 properties.
So far we've help establish credit scores for more than 10000 individuals who were previously credit invisible.
Participants with existing credit scores improve their scores by an average of 43 points.
Looking ahead for the balance of 2022, we will continue to emphasize our strategic priorities and our renewed focus on mission.
We're off to a good start.
In January we became subject to the regulatory capital reporting requirements in the enterprise regulatory capital framework with our first quarterly capital report due by May 30 <unk>.
The framework, which establishes risk based and leverage capital minimums for Freddie Mac.
It requires us to hold significantly more capital than we did under the former conservatorship capital framework.
We have already announced the plan to further reduce our risk exposure with our biggest year ever for single family credit risk transfer or CRT issuance.
By the end of 2022, we expect to have issued at least 25 billion of our flagship stacker and acis offerings.
More than 30% increase over our record year in 2021.
And finally, we're ramping up our sustainability efforts in 2022.
We recently published our first annual sustainability report.
In accordance with the sustainability accounting standards board or SaaS fee.
This document provides data on Freddie Mac's business practices, including metrics and activities related to equitable lending flood risk and diversity in hiring.
The SaaS be report together with our multifamily sustainability green and social bonds and recently produced single family Green Bond framework reflects Freddie Mac's ongoing environmental social and governance focus.
Now, let's turn to our financial results with Chris Lab. Thanks, Michael.
For full year 2021, we reported net income of $12 1 billion in.
An increase of 65% from 2020.
We also reported comprehensive income of $11 6 billion, an increase of 54% from 2020.
Net revenues increased by 32% year over year to $22 billion driven.
Driven by a 38% increase in net interest income.
The increase was primarily a result of 20% growth in the single family mortgage portfolio and higher deferred fee income recognition due to faster loan prepayments as a result of low mortgage rates.
Net investment gains increased roughly 50% or $900 million to $2 7 billion.
Primarily driven by higher margins on multifamily loan commitments and favorable spreads.
Full year credit related expense declined by $1 $3 billion to $1 billion in 2021, which is mainly due to the release of pandemic related provisions this year and benefited from a 16, 8% increase in home prices in 2021.
Freddie Mac mortgage portfolio grew by 18% year over year to three two trillion.
And 2021.
This increase was primarily driven by a 20% increase in our single family mortgage portfolio and a 7% increase in our multifamily mortgage portfolio.
Turning to the fourth quarter of 2021, we reported net income of $2 7 billion.
Down 6% from the fourth quarter last year.
Comprehensive income of $2 7 billion.
Up 8% from the same period last year.
The decline in net income was primarily driven by a credit expense this quarter compared with a reserve release in the fourth quarter of 2020.
Getting into more detail fourth quarter net revenues totaled $5 6 billion.
An increase of 11% compared to $5 billion in the prior year quarter as a result of higher net interest income, partially offset by lower noninterest income.
Net interest income increased by 30% year over year to $4 8 billion.
Mainly driven by higher net interest income in the single family segment, which saw its mortgage portfolio grow by $466 billion.
Noninterest income was down from the prior year quarter due to lower investment gains mostly in the multifamily segment.
Investment gains fell 39% due to lower volume of multifamily mortgage loan purchase and securitization activity due to a $70 billion FHFA loan purchase cap unless favorable market spreads looking at the individual business lines. The single family segment reported full year comprehensive income of $8 4 billion.
Up from $4 3 billion in the prior year.
This was largely due to a 40% increase in net interest income mainly driven by an increase in guaranty fee income from growth in the single family portfolio and a higher average portfolio guarantee fee rate of 46 basis points compared with 44 basis points in 2020.
In terms of new business in 2021, we saw strong home purchase activity and moderating refinance activity versus 2020, the refi continued to make up the greatest share of loans.
Total single family, New business activity increased by 12% to a record one two trillion.
Reflecting a 32% increase in home purchase loans and a 3% increase in refinance loans.
At the end of 2021, 53% of our single family mortgage portfolio had some form of credit enhancement coverage and increase of three percentage points from 2020.
Moving to multifamily the business reported comprehensive income of $3 2 billion for 2021, a slight decline year over year.
Our multifamily mortgage portfolio grew 7% year over year to $415 billion in 2021.
We saw new business activity declined by $13 billion from $83 billion in 2020 to the $70 billion regulatory cap in 2021.
For 2020 to FHFA increase this purchase cap for new business to $78 billion.
Finally, our multifamily credit risk transfer issuances during the year covered $84 billion of multifamily <unk> increase.
Increasing the credit enhancement coverage on the multifamily portfolio to 94% at the end of 2021 from 89% in 2020 and.
In addition, approximately 69% of multifamily loans in forbearance are included in Securitizations with first loss credit enhancement provided by subordination.
Overall, we saw strong performance from both our business lines that contributed substantially to our capital position, which ended the year just north of 28 billion.
And now I'll hand, the call back to Michael.
As I recently shared with our team 2021 was the euro spent listening learning and exploring the potential of a great organization.
This included engaging with leadership employees customers and other stakeholders as they work to deliver extraordinary results for our housing finance market and economy.
As we look to 2022, we had Freddie Mac are excited to get to work and take these efforts to the next level.
Thank you for joining us today.
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Good morning, and thank you for joining us for our presentation of Freddie Macs fourth quarter and full year 2021 financial results I'm, Jeff Markowitz, Deputy CIO and SVP of external relations and corporate communications, we're joined today by our CEO , Michael Devito and by our CFO Chris Lau.
Before we begin we'd like to point out that during the call. Mr to video and Mr. Lown 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.
Those factors can be found in the company's quarterly report on Form 10-K filed today you will find the 10-K earnings press release and related materials posted on the Investor Relations section of Freddie Mac Dot com.
This call is recorded and a replay will soon be available on Freddie Mac Dot com, we ask them to call might be rebroadcast or transcribed with that I will turn the call over to Freddie Mac CEO Michael Devito.
Good morning, and thank you for joining us to review another strong year for Freddie Mac.
Today I will briefly highlight the progress we've made on our strategic priorities in 2021.
And offer some thoughts on what we expect in 2022.
And our CFO , Chris <unk> will walk you through our financials.
So let me begin with a quick recap of our progress last year.
Freddie Mac's mission has long been understood is delivering liquidity stability and affordability to the housing market.
As I've noted in prior calls we interpret that mission expansively to meet the country's broader housing needs in all economic environments.
That work includes <unk>.
Enhancing liquidity within the mortgage and capital markets.
<unk>, the housing market and keeping families in their homes throughout the economic cycle.
Working with an array of housing market participants to promote greater access to supply of affordable and sustainable homes throughout the country.
Promoting greater equity in housing.
Helping lenders of all sizes better serve their communities.
<unk>, environmental social and governance strategies into our business and operations.
In short our mission is to make home possible for millions of renters and borrowers across the nation.
This is the overarching purpose of all our efforts and everything we do is in further in southern.
Last year I set out three pillars that support our mission delivering results practicing risk management excellence and growing our talent.
I'd like to take a moment to highlight some of the progress we've made with respect to each of those pillars over the last year.
Let me first begin with the strong results we delivered in 2021.
Chris <unk> will go into more depth in a few minutes.
But the headline numbers are worth noting here Freddie.
Freddie Mac earned net and comprehensive income of $12 1 billion and $11 6 billion respectively in 2021.
This significantly exceeded our very strong 2020 performance.
Our earnings helped bring the company's total equity to $28 billion.
71% greater than our net worth at year end 2020.
I should also say a word about the importance of building capital and the integral relationship. It has on our mission.
Capital is essential both as the backstop for the risks we assume it's supporting our mission.
And to signal safety and soundness taxpayers are partners in the financial markets.
We remain under capitalized and our path to a stronger capital position is through consistently solid financial performance.
To achieve that performance, we must demonstrate with relentless focus on all aspects of our business.
Second we practice solid risk management in 2021.
For example, our servicer outreach and loss mitigation efforts combined with improving economic conditions dramatically reduce delinquent loans in our portfolio.
Our 2021 single family serious delinquency rate declined to one 1% 2%.
And our multifamily delinquency rate dropped to 0.08% at year end.
Far below their respective pandemic peaks of 3.04% and 0.17%.
And third we're growing talent by building a strong leadership team and supporting a culture, where individuals from all backgrounds, who do things the right way can succeed.
We often see the support Materializing awards and recognition for example, the human rights campaign, just named Freddy Mac, a best place to work for LGBTQ plus equality.
And gave our company a perfect score on its corporate quality index.
It was the 13th consecutive time, we've earned the award since 2010.
As I said the purpose of everything we do is ultimately to make home possible for owners and renters.
Our earnings increased capital focus on risk management and committed team serve this mission and the nation well in 2021.
We helped nearly 5 million families by refinance or rent a home last year.
We financed nearly one 4 million purchases, including 554000 for first time homebuyers.
We enabled $2 9 million households to lower their monthly mortgage payments are received more favorable terms through refinancing.
And of the 655000 rental units refinanced last year.
94% were affordable to renters, earning 120% or less of area median income.
We also continued our efforts to help families wrestling with the effects of the global pandemic remain in their homes.
Last year 317000 single family borrowers received a forbearance deferral or other relief from a Freddie Mac servicer.
Since the earliest days of the pandemic in 2020, approximately 858000 homeowners have entered into a forbearance agreement with our Servicers.
And we have helped more than 700000 get back on their feet through the relief I mentioned earlier.
Multifamily borrowers in renters also benefited from Freddie Mac's pandemic forbearance programs.
More than a 136000 renters and properties subject to a forbearance agreement receive protection from eviction for nonpayment of rent over the course of the pandemic.
Approximately 042 percent of loans in our multifamily portfolio remained in the COVID-19 related forbearance as of December 31.
Mark decrease from two 1% at the end of 2020.
While we put our existing tools to work in support of our mission in 2021, we continue to develop new ones that help homebuyers and renters access quality sustainable housing.
In August we expanded our home renovation loan offering with choice Reno Express mortgages. This single family offering helps homebuyers and homeowners reduce their out of pocket costs, the more affordable long terms and using credit cards or unsecured financing when making small scale renovations.
In November our multifamily division created a program to help renters build credit by reporting on time rent payments to the three credit bureaus.
The early results are promising by year end 2021 more than 73000 tenant households.
<unk> offered this program across 284 properties.
So far we've help establish credit scores for more than 10000 individuals who were previously credit invisible.
Participants with existing credit scores improve their scores by an average of 43 points.
Looking ahead for the balance of 2022, we will continue to emphasize our strategic priorities and our renewed focus on mission, we're off to a good start.
In January we became subject to the regulatory capital reporting requirements in the enterprise regulatory capital framework with our first quarterly capital report due by May 30 <unk>.
The framework, which establishes risk based and leverage capital minimums for Freddie Mac.
Requires us to hold significantly more capital than we did under the former conservatorship capital framework.
We have already announced the plan to further reduce our risk exposure with our biggest year ever for single family credit risk transfer or CRT issuance.
By the end of 2022, we expect to have issued at least 25 billion of our flagship stacker and acis offerings.
More than 30% increase over our record year in 2021.
And finally, we're ramping up our sustainability efforts in 2022.
We recently published our first annual sustainability report.
In accordance with the sustainability accounting standards board or SaaS fee.
This document provides data on Freddie Mac's business practices, including metrics and activities related to equitable lending flood risk and diversity in hiring.
The SaaS be report together with our multifamily sustainability green and social bonds and recently produced single family Green Bond framework reflects Freddie Mac's ongoing environmental social and governance focus.
Now, let's turn to our financial results with Chris Lab. Thanks, Michael.
For full year 2021, we reported net income of $12 1 billion, an increase of 65% from 2020.
We also reported comprehensive income of $11 6 billion.
An increase of 54% from 2020.
Net revenues increased by 32% year over year to 22 billion driven by a 38% increase in net interest income.
The increase was primarily a result of 20% growth in the single family mortgage portfolio and higher deferred fee income recognition due to faster loan prepayments as a result of low mortgage rates.
Net investment gains increased roughly 50% or $900 million to $2 7 billion.
Primarily driven by higher margins in multifamily loan commitments and favorable spreads.
Full year credit related expense declined by $1 $3 billion to $1 billion in 2021, which is mainly due to the release of pandemic related provisions this year and benefited from a 16, 8% increase in home prices in 2021.
Freddie Mac's mortgage portfolio grew by 18% year over year to three two trillion.
And 2021.
This increase was primarily driven by a 20% increase in our single family mortgage portfolio and a 7% increase in our multifamily mortgage portfolio.
Turning to the fourth quarter of 2021, we reported net income of $2 7 billion.
Down 6% from the fourth quarter last year and comprehensive income of $2 7 billion.
Up 8% from the same period last year.
The decline in net income was primarily driven by credit expense this quarter compared with a reserve release in the fourth quarter of 2020.
Getting into more detail fourth quarter net revenues totaled $5 6 billion.
An increase of 11% compared to $5 billion in the prior year quarter as a result of higher net interest income, partially offset by lower noninterest income.
Net interest income increased by 30% year over year to $4 8 billion.
Mainly driven by higher net interest income in the single family segment, which saw its mortgage portfolio grow by $466 billion.
Noninterest income was down from the prior year quarter due to lower investment gains mostly in the multifamily segment.
Investment gains fell 39% due to lower volume of multifamily mortgage loan purchase and securitization activity due to a $70 billion FHFA loan purchase GAAP unless favorable market spreads looking at the individual business lines. The single family segment reported full year comprehensive income of $8 4 billion.
Up from $4 3 billion in the prior year.
This was largely due to a 40% increase in net interest income mainly driven by an increase in guaranty fee income from growth in the single family portfolio and a higher average portfolio guarantee fee rate of 46 basis points compared with 44 basis points in 2020.
In terms of new business in 2021, we saw strong home purchase activity and moderating refinance activity versus 2020.
<unk> continued to make up the greatest share of loans.
Total single family, New business activity increased by 12% to a record one two trillion.
Reflecting a 32% increase in home purchase loans and a 3% increase in refinance loans.
At the end of 2021, 53% of our single family mortgage portfolio had some form of credit enhancement coverage and increase of three percentage points from 2020.
Moving to multifamily the business reported comprehensive income of $3 2 billion for 2021, a slight decline year over year.
Our multifamily mortgage portfolio grew 7% year over year to $415 billion in 2021.
We saw new business activity declined by $13 billion.
From $83 billion in 2022, the $70 billion regulatory cap in 2021.
For 2020 to FHFA increase this purchase cap for new business to $78 billion.
Finally, our multifamily credit risk transfer issuances during the year covered $84 billion of multifamily you PB <unk>.
Increasing the credit enhancement coverage on the multifamily portfolio to 94% at the end of 2021 from 89% in 2020.
In addition, approximately 69% of multifamily loans in forbearance are included in Securitizations with first loss credit enhancement provided by subordination.
Overall, we saw strong performance from both our business lines that contributed substantially to our capital position, which ended the year just north of 28 billion.
And now I'll hand, the call back to Michael.
As I recently shared with our team 2021 was a euro spent listening learning and exploring the potential of a great organization.
This included engaging with leadership employees customers and other stakeholders as they work to deliver extraordinary results for our housing finance market and economy.
As we look to 2022, we had Freddie Mac are excited to get to work and take these efforts to the next level.
For joining us today.