Q1 2022 Federal Home Loan Mortgage Corp Earnings Call

April 28, 2022

Okay.

Good morning, and thank you for joining us for our presentation of Freddie Mac's first quarter 2022 financial results and Jeff Markowitz, Deputy CIO and SVP of external affairs and corporate communications rejoin.

Today by our CEO , Michael Devito, and by our CFO , Chris Lauder.

Before we begin we'd like to point out that during the call. Mr. Devito of Mr. Bob May make forward looking statements based on assumptions about the company's key business drivers and other factors.

And these factors could cause the company's actual results to materially vary from its expectations.

Friction of those factors can be found in the company's quarterly report on Form 10-Q filed today, you'll find the 10-Q 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 asked at 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 to review our first quarter performance.

Today I'll cover some of the ways, we advanced our strategic objectives and serve the housing finance market.

I'll also highlight some of our efforts to help borrowers and renters in the current economic environment.

Then our CFO , Chris Lown will take you through our financials.

Let me begin with how we served our mission in the first quarter.

We helped 835000 families.

By refinance or rent a home.

First time homebuyers represented nearly half of all owner occupied purchases financed by Freddie Mac.

And 52% of all eligible from loans and 95% of the 144000 rental units, we financed were affordable to families, earning at or below 120% of area median income.

This all added up to $223 billion of liquidity to the U S housing finance market.

Additionally, we advanced our three strategic objectives.

All of which directly support our mission.

First we continue to strive for risk management excellence.

We made progress during the first quarter as delinquency rates on loans in our portfolio continued to decline.

Single family serious delinquencies dropped to less than 1% the lowest in two years.

As the pandemic impact on our portfolio continues to wane similar.

Similarly, multifamily delinquency rate is at near pre pandemic levels.

We also reduced our risks through a record quarter for single family credit risk transfer.

That included back to back record issuances for our flagship stacker product.

Second we are growing our talent Heidi Mason joined Freddie Mac as our new General Counsel Heidi brings 25 years of experience in mortgage lending financial services consumer protection and security slot of Freddie Mac <unk>.

Including at Wells Fargo, where I had the pleasure to work alongside her.

We were also proud to announce Wendell chambliss as chief diversity and inclusion officer.

Wendell has a 20 year veteran of Freddie Macs legal team.

Recently served as Vice President and Deputy General Counsel for mission and government Affairs.

With these two appointments minority and women executives now make up more than half of our senior leadership.

Let me now turn to our third objective delivering results.

We earned net income of $3 $8 billion in the quarter significantly more than the prior quarter and first quarter of 2021.

Our earnings contributed to our increased net worth which now stands at $31 $7 billion.

We're very pleased with this progress and we also know that there remains much to do.

Let me now move to the housing market.

We observed house price growth of nearly 18% from 2021 and another 5% in the first quarter of 2022 mortgage rates reached $4 six 7% at the end of Q1 and more broadly inflation is at its highest rate in 40 years.

While we can likely expect the pace of house price appreciation to moderate as interest rates move higher.

The demand for homes is simply outpacing supply.

And although the inventory of existing homes grew in March homes for sale in February were 1.25 million a record low this supply imbalances, having a major influence on price growth and it's likely to be with us for some time.

Similarly supply issues have driven rents higher growing two 5% on a quarter over quarter basis, and 15, 6% over the past 12 months.

We acknowledge that this environment is challenging for renters borrowers and lenders and we remain committed to making sustainable ownership affordable and accessible.

For example, more than 20000 borrowers took advantage of Freddie Macs home possible loan products in the first quarter.

This enabled them to acquire a home with as little as a 3% down payment.

Most of these new homeowners will take advantage of borrower education through programs, such as Freddie Mac's credit smart.

In the first quarter alone more than 18000 consumers.

Pleaded our credit Smart Homebuyer, you course, which offers potential homebuyers, a comprehensive understanding of home buying and is offered in both English and Spanish.

We also brought credit smart courses to historically black colleges and universities <unk>.

Including three seminar so far this year completed by more than 275 HBC you students.

Wireless if taken to heart the importance of building a strong credit profile.

Last quarter, we told you about our program that helps renters increase their credit scores by reporting on time rental payments to credit reporting agencies.

Since then we've enrolled 43000 households across more than 450 multifamily properties.

More than 13000, new credit scores have been established and 71% of renters with an existing credit score saw their scores increase.

Additionally for renters, we're building on the tenant protections, we announced last year by extending protections to those who rent a home within a manufactured housing community. These include prior notice of rent increases and a notice of a planned sale or closure of the community.

We're also helping to address supply issues through financing for manufactured homes accessory dwelling units and homes in need of updates.

Offerings, such as choice renovation, which gives borrowers the ability to finance the cost of renovations helped bring more of these affordable home options into the housing supply.

In the first quarter, Freddie Mac finance more than $40 million and choice renovation loans.

Even in a challenging economic environment, we remain committed to helping advance equitable and sustainable housing.

Very importantly, I want to emphasize that we are taking on all of this work, while maintaining our commitment to prudent and principled risk management.

Now I would like to hand over the call to Chris Lown, who will cover our financial and business results.

Thank you Michael.

And good morning.

As Michael mentioned I'm happy to report that Freddie Mac had another strong quarter.

We earned net income of $3 8 billion, an increase of $1 billion or 37% year over year.

This increase was primarily driven by continued growth in our single family portfolio.

Higher investment gains on a mark to market commitments and higher benefit for credit losses.

The benefit for credit losses was primarily driven by a reserve release due to observed house price appreciation and higher forecasted house prices.

First quarter net revenues increased 11% to $5 8 billion.

Compared to $5 $3 billion in the prior year quarter as higher net interest income and higher investment gains were partially offset by lower multifamily guarantee income.

Net interest income increased by 13% year over year to $4 $1 billion.

Mainly driven by higher net interest income in the single family segment <unk>.

Investment gains were 25% higher year over year, primarily driven by mark to market gains on our commitments.

Observed house price appreciation and higher forecasted house prices drove the $837 million benefit for credit losses in the quarter Reis.

Resulting in a higher credit related benefit of $641 million compared to a benefit of $196 million in the prior year quarter.

Turning to our individual business segments and single family net income increased by almost $1.7 billion from the prior year quarter to $3 4 billion.

This increase was driven by higher net revenues of $5 2 billion versus $3 8 billion in the prior year quarter.

The increase in net revenues was driven by higher net interest income of $498 million due to a 17% year over year growth in the single family mortgage portfolio, which grew to nearly 2.9 trillion at the end of the first quarter.

The average guaranty fee earned on the portfolio also increased by two basis points year over year to 47 basis points.

The $867 million increase in noninterest income was primarily driven by higher net investment gains primarily due to mark to market gains on commitments.

In addition, the benefit for credit losses increased $685 million from the prior year as we released reserves due to observed house price appreciation and higher forecast house prices new.

New business activity of 207 billion declined $155 billion year over year as we saw a meaningful decline in refinance activity due to continued increases in mortgage interest rates refi.

Refinance volume declined $159 billion year over year.

On the credit side, the serious delinquency rate continued to decline to 92 basis points, a decline of 142 basis points from <unk> 2021, and 20 basis points from <unk> 2021.

In <unk> 2022 we helped approximately 49000 families remain in their homes through loan workouts.

Our single family portfolio credit characteristics remained strong with a weighted average current loan to value ratio at 54% and a weighted average current credit score is 756.

At the end of the first quarter, 55% of our single family portfolio had some form of credit enhancement.

Looking to multifamily the segment reported net income of $387 million down $642 million from the prior year quarter.

This decline was primarily driven by lower investment gains due to spread widening.

Our initial pricing margins on new loan purchases and lower guarantee fee income, which was impacted by rising interest rates and spread widening on the fair values of the guarantee assets.

Multifamily new business activity was $15 billion in the first quarter and the multifamily mortgage portfolio increased by 5% year over year to $415 billion.

The multifamily delinquency rate, which does not include loans in forbearance was eight basis points as of March 31, 2022 unchanged from last quarter, approximately 94% of the multifamily mortgage portfolio was covered by credit enhancements at the end of the first quarter.

On the capital front, our net worth increased to $31 $7 billion at the end of the quarter, representing a 69% increase year over year.

With that I will turn it back over to Michael.

Thank you Chris I believe we have much to be excited about in 2022.

Year is off to a good start with a strong financial performance prudent risk management and the addition of talented executives to our senior ranks.

All of that is helping us to achieve our number one priority.

Fulfilling our vitally important mission, making home possible.

Thank you for joining us today.

This concludes today's webcast. Thank you for participating you may now disconnect everyone have a great day.

Okay.

[music].

Okay.

Thanks.

Yes.

[music].

Good morning, and thank you for joining us for our presentation of Freddie Mac's first quarter 2022 financial results.

Mark, which deputy CIO and SVP of external affairs, and corporate Communications, we're joined today by our CEO , Michael Devito and by our CFO Chris loud.

Before we begin we'd like to point out that during the call. Mr. Davita, where Mr. <unk> may make forward looking statements based on assumptions about the Companys key business drivers and other factors changes in these factors could cause the company's actual results to materially vary from expectations.

A description of those factors can be found in the company's quarterly report on Form 10-Q filed today, you'll find the 10-Q 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 asked them to call not 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 our first quarter performance.

Today I'll cover some of the ways, we advanced our strategic objectives and served the housing finance market.

I'll also highlight some of our efforts to help borrowers and renters in the current economic environment.

Then our CFO , Chris <unk> will take you through our financials.

Let me begin with how we served our mission in the first quarter.

We helped 835000 families.

<unk> refinance or rent a home.

First time homebuyers represented nearly half of all owner occupied purchases financed by Freddie Mac.

And 52% of all eligible home loans and 95% of the 144000 rental units, we financed were affordable to families, earning at or below 120% of area median income.

This all added up to $223 billion of liquidity to the U S housing finance market.

Additionally, we advanced our three strategic objectives.

All of which directly support our mission.

First we continue to strive for risk management excellence.

We made progress during the first quarter as delinquency rates on loans in our portfolio continued to decline.

Single family serious delinquencies dropped to less than 1% the lowest in two years as the pandemic impact on our portfolio continues to wane.

Similarly, multifamily delinquency rate is that near pre pandemic levels.

We also reduced our risks through a record quarter for single family credit risk transfer.

That included back to back record issuances for our flagship stacker product.

Including at Wells Fargo, where I had the pleasure to work alongside her.

We were also proud to announce Wendell chambliss as chief diversity and inclusion officer.

Wendell has a 20 year veteran of Freddie Macs legal team.

Most recently served as vice President and Deputy General Counsel for mission and government Affairs.

With these two appointments minority and women executives now make up more than half of our senior leadership.

Let me now turn to our third objective delivering results.

We earned net income of $3 8 billion in the quarter significantly more than the prior quarter and first quarter of 2021.

Our earnings contributed to our increased net worth which now stands at $31 7 billion.

We're very pleased with this progress and we also know that there remains much to do.

Let me now move to the housing market.

We observed house price growth of nearly 18% in 2021 and another 5% in the first quarter of 2022 mortgage rates reached 467% at the end of Q1.

And more broadly inflation is at its highest rate in 40 years.

While we can likely expect the pace of house price appreciation to moderate as interest rates move higher the demand for homes is simply outpacing supply.

And although the inventory of existing homes grew in March homes for sale in February were one $2 5 million a record low this supply imbalances, having a major influence on price growth is likely to be with us for some time.

Similarly supply issues have driven rents higher growing two 5% on a quarter over quarter basis, and 15, 6% over the past 12 months.

We acknowledged that this environment is challenging for renters borrowers and lenders and we remain committed to making sustainable ownership affordable and accessible.

For example, more than 20000 borrowers took advantage of Freddie Macs home possible loan products in the first quarter.

This enabled them to acquire a home with as little as a 3% downpayment.

Most of these new homeowners will take advantage of borrower education through programs, such as Freddie Mac's credit smart.

In the first quarter alone more than 18000 consumers completed our credit Smart Homebuyer, you course, which offers potential homebuyers a comprehensive understanding of home buying and is offered in both English and Spanish.

We also brought credit smart courses to historically black colleges and universities <unk>.

Including three seminar so far this year completed by more than 275 HBC you students.

Borrowers have taken to heart the importance of building a strong credit profile.