Q1 2024 Federal Home Loan Mortgage Corp Earnings Call
Jeffrey Markowitz: Good morning, and thank you for joining us for a presentation of Freddie Mac's first quarter 2024 financial results. I'm Jeff Markowitz, Deputy CAO and SVP of External Affairs and Corporate Communications.
Good morning, and thank you for joining us for our presentation or Freddie Mac's first quarter 2024 financial results I'm, Jeff Markowitz, Deputy CIO and SVP of external affairs and corporate Communications, we're joined today by our CFO, Chris Lown before we begin we'd like to point out that.
Jeffrey Markowitz: We're joined today by our CFO, Chris Lown. Before we begin, we'd like to point out that during the call, 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.
During the call to Mr. Lau 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 companys 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, you'll find the 10-Q earnings press release and related.
Jeffrey Markowitz: A description of those factors can be found in the company's quarterly report on Form 10-Q, which will be filed today. You'll find the 10-Q earnings press release and related materials posted in the Investor Relations section of freddiemac.com. This call is recorded, and a replay will soon be available on freddiemac.com. We ask that the call not be rebroadcast or transcribed.
Cheerios 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 not be rebroadcast or transcribed with that I'll turn the call over to Freddie Mac CFO, Chris Lown.
Christian M. Lown: With that, I'll turn the call over to Freddie Mac CFO, Chris Lown. Good morning, and thank you for joining our call to review Freddie Mac's first quarter 2024 financial results. Before I move on to our earnings, I'd like to offer some brief remarks about the mission our financial performance supports. In the first quarter, Freddie Mac helped make it possible for hundreds of thousands of families to rent, buy, or refinance a home. 90% of the rental homes we helped finance were affordable to low and moderate income families. Additionally, first-time homebuyers represented 52% of new single-family home purchase loans. That's a new high for us.
Christian M. Lown: We are working to extend these opportunities to more borrowers and renters in a safe, sound, and sustainable way. Here are three examples of how we have moved toward that goal since the beginning of the year. First, we added to our affordability toolkit for very low-income homebuyers. Through our Home Possible Very Low Income Purchase Credit, eligible families earning 50% or less of the area median income can now receive a $2,500 credit to help them with closing costs or a down payment.
Christian M. Lown: Good morning, and thank you for joining our call to review Freddie Mac's first quarter 2024 financial results. Before I move on to our earnings, I'd like to offer some brief remarks about the mission our financial performance supports. In the first quarter, Freddie Mac helped make it possible for hundreds of thousands of families to rent, buy, or refinance a home. 90% of the rental homes we helped finance were affordable to low and moderate-income families. First-time homebuyers represented 52% of new single-family home purchase loans. That's a new high for us.
Christian M. Lown: Good morning, and thank you for joining our call to review Freddie Mac's first quarter 2024 financial results before I move on to our earnings I'd like to offer some brief remarks about the mission of our financial performance supports.
Christian M. Lown: Second, we made mission-focused investing easier for the firms that supply liquidity to the U.S. housing finance system. Updates to our mission index could help investors identify mortgage-backed securities that meet their social investment goals. And third, we continue to update our risk management practice. We recently announced multifamily policy and process changes, including enhanced property inspection requirements and appraisal reviews that further strengthen our underwriting due diligence and risk mitigation. Through these actions and others, Freddie Mac is helping to make homes possible for families across the country in a safe and sound manner.
Christian M. Lown: First quarter, Freddie Mac helped to make it possible for hundreds of thousands of families to rent buy or refinance at home.
90% of the rental homes, we help finance were affordable to low and moderate income families.
First time homebuyers represented 52% of new single family home purchase loans, that's a new high for US we are working to extend these opportunities to more borrowers and renters in a safe sound and sustainable way here are three examples of how we move towards that goal since the beginning of the year.
Christian M. Lown: We are working to extend these opportunities to more borrowers and renters in a safe, sound, and sustainable way. Here are three examples of how we have moved toward that goal since the beginning of the year. First, we added to our affordability toolkit for very low-income homebuyers. Through our Home Possible Very Low Income Purchase Credit, eligible families earning 50% or less of the area median income can now receive a $2,500 credit to help them with closing costs or a down payment.
Christian M. Lown: Second, we made mission-focused investing easier for the firms that supply liquidity to the U.S. housing finance system. Updates to our mission index could help investors identify mortgage-backed securities that meet their social investment goals. And third, we continue to update our risk management practice. We recently announced multifamily policy and process changes, including enhanced property inspection requirements and appraisal reviews that further strengthen our underwriting due diligence and risk mitigation. Through these actions and others, Freddie Mac is helping to make homes possible for families across the country in a safe and sound manner.
First we added to our affordability toolkit for very low income homebuyers.
Through our home possible very low income purchase credit eligible families, earning 50% or less of area median income can now receive a 2500 dollar credit to help them with closing costs or a down payment.
Christian M. Lown: Second we made mission focused investing easier for the firms that supply liquidity to the U S housing finance system.
Christian M. Lown: Updates to our mission index could help investors identify mortgage backed securities meeting their social investment goals.
Christian M. Lown: And third we continue to update our risk management practices.
Christian M. Lown: We recently announced multifamily policy and process changes, including enhanced property inspection requirements and appraisal reviews that further strengthen our underwriting due diligence and risk mitigation.
Christian M. Lown: Through these actions and others, Freddie Mac is helping to make home possible for families across the country in a safe and sound manner.
Christian M. Lown: Now, let's take a look at our financial results. We earned a net income of $2.8 billion this quarter, an increase of $771 million, or 39% year-over-year. This increase was primarily driven by higher net investment gains and higher net interest income, which benefited from higher rates. First quarter net interest income was $4.8 billion, up 6% year-over-year. The single-family mortgage portfolio grew 2% and saw a one-basis point increase in the average estimated single-family guarantee fee rate.
Speaker Change: Now, let's take a look at our financial results.
Speaker Change: Our net income of $2 8 billion this quarter, an increase of $771 million.
Speaker Change: Our 39% year over year.
Speaker Change: This increase was primarily driven by higher net investment gains and higher net interest income, which benefited from higher rates first quarter net interest income was $4 8 billion up 6% year over year.
Speaker Change: The single family mortgage portfolio grew 2% and so a one basis point increase in the average estimated single family Guaranty fee rate.
Christian M. Lown: Higher investment income benefiting from higher short-term interest rates also contributed to the increase in net interest income. However, these positive drivers were partially offset by lower deferred fee income recognition, resulting from slower prepayments due to higher mortgage rates. Non-interest income for the first quarter was $1 billion, an increase of $672 million from the prior year quarter, primarily due to an increase in net investment gains in multifamily. Our provision for credit losses was $181 million for this quarter, driven by modest credit reserve bills in both business segments, compared to a higher provision expense of $395 million for the prior year quarter, which was primarily attributable to new acquisitions in that period.
Speaker Change: Higher investment income benefiting from higher short term interest rates also contributed to the increase in net interest income.
Speaker Change: These positive drivers were partially offset by lower deferred fee income recognition, resulting from slower prepayments due to higher mortgage rates.
Speaker Change: Noninterest income for the first quarter was $1 billion.
Speaker Change: An increase of $672 million from the prior year quarter, primarily due to an increase in net investment gains in multifamily.
Speaker Change: Our provision for credit losses was $181 million for this quarter driven by modest credit reserve bills in both business segments compared to a higher provision expense of $395 million for the prior year quarter, which was primarily attributable to new acquisitions in that period, our total mortgage portfolio at the end of this quarter was $3 five trillion.
Christian M. Lown: Our total mortgage portfolio at the end of this quarter was $3.5 trillion, a 2% increase year over year. Turning to our individual business segments, the single family segment reported net income of $1.9 billion for the quarter, up $268 million, or 16% year over year. Single-family net revenues of $4.5 billion increased 6% from the prior year quarter. This increase was primarily driven by a 4% increase in our net interest income, which benefited from continued growth in our single-family mortgage portfolio. Investment net interest income also increased due to higher short-term interest rates. However, these increases were partially offset by lower deferred fee income due to slower prepayments as a result of higher mortgage rates.
Speaker Change: A 2% increase year over year.
Speaker Change: Turning to our individual business segments. The single family segment reported net income of $1 9 billion for the quarter up $268 million or 16% year over year.
Speaker Change: Single family net revenues of $4 5 billion increased 6% from the prior year quarter.
Speaker Change: This increase was primarily driven by a 4% increase in our net interest income, which benefited from continued growth in our single family mortgage portfolio.
Speaker Change: Investment net interest income also increased due to higher short term interest rates.
Speaker Change: These increases were partially offset by lower deferred fee income due to slower prepayments as a result of higher mortgage rates.
Christian M. Lown: Our provision for single-family credit losses was at an expense of $120 million this quarter, primarily due to a modest credit reserve bill for new acquisitions and the impact of higher mortgage rates. The provision for the prior year quarter was $318 million, which was primarily attributable to new acquisitions. Our current house price forecast assumes an increase of 0.2% over the next 12 months and 0.6% over the subsequent 12 months. This is down from our forecast at the end of last quarter, which assumed 2.8% and 2% growth over the next 12 and subsequent 12 months, respectively.
Speaker Change: Our provision for single family credit losses was an expense of $120 million. This quarter, primarily due to a modest credit reserve build for new acquisitions, and the impact of higher mortgage rates.
Speaker Change: The provision in the prior year quarter was $318 million, which was primarily attributable to new acquisitions. Our current house price forecast assumes an increase of zero, 2% over the next 12 months and 0.6% over the subsequent 12 months.
Speaker Change: This is down from our forecast at the end of last quarter, which assumed two 8% and 2% growth over the next 12 and subsequent 12 months, respectively. The single family allowance for credit losses coverage ratio at the end of this quarter was 20 basis points unchanged from the last quarter and down six basis points year over year.
Christian M. Lown: The single-family allowance for credit losses coverage ratio at the end of this quarter was 20 basis points, unchanged from the last quarter and down 6 basis points year over year. The single-family serious delinquency rate continued to be historically low and declined to 52 basis points at the end of the first quarter, down 10 basis points from 1Q2023, and 3 basis points from 4Q2023. In the first quarter, we helped approximately 21,000 families remain in their homes through loan workouts.
Speaker Change: Single family serious delinquency rate continued to be historically low and declined to 52 basis points at the end of the first quarter down 10 basis points from <unk> 2023, and three basis points from <unk> 2023.
Speaker Change: In the first quarter, we have approximately 21000 families remain in their homes through loan workouts.
Christian M. Lown: Our single-family mortgage portfolio at the end of the quarter was $3 trillion, up 2% year-over-year. Credit characteristics of our single-family portfolio remain strong, with the weighted average current loan-to-value ratio at 52% and the weighted average current credit score at 754. At the end of the quarter, 61% of our single family portfolio had some form of credit enhancement. New business activity totaled $62 billion this quarter, slightly up from $59 billion in 1Q2023. First-time homebuyers represented 52% of our total new business activity.
Speaker Change: Our single family mortgage portfolio at the end of the quarter was three trillion.
Speaker Change: Up 2% year over year.
Speaker Change: Credit characteristics of our single family portfolio remains strong with a weighted average current loan to value ratio at 52% and the weighted average current credit score at 754 at.
Speaker Change: At the end of the quarter, 61% of our single family portfolio had some form of credit enhancement.
Speaker Change: New business activity totaled $62 billion this quarter slightly up from $59 billion from <unk> 2023.
Speaker Change: First time homebuyers represented 52% of our total new business activity.
Christian M. Lown: Higher mortgage rates continue to impact both purchase and refinance activity. Refinance activity accounted for 15% of our total new business activity this quarter, which was slightly up from 11% in 4Q 2023. Mortgage rates at the end of the quarter were 6.79%, up from 6.61% at the end of 4Q2023, and 6.32% at the end of 1Q2023. The Weighted Average Original Loan-to-Value on New Purchases was 78 percent, and the Weighted Average Original Credit Score was 753, while the Average Estimated Guarantee Fee charged on the new business was 55 basis points.
Speaker Change: Higher mortgage rates continue to impact both purchase and refinance activity.
Speaker Change: Refinance activity accounted for 15% of our total new business activity this quarter, which was slightly up from 11% in <unk> 2023.
Speaker Change: Mortgage rates at the end of the quarter was $6, 79% up from $6 six 1% at <unk> 2023, and $6 three 2% at <unk> 2023.
Speaker Change: The weighted average original loan to value on new purchases was 78% and weighted average original credit score was 753, while the average estimated guarantee fee charged on the new business was 55 basis points moving on to multifamily the segment reported net income of $821 million up.
Christian M. Lown: Moving on to multifamily, the segment reported an income of $821 million, up $503 million from the prior year quarter. This increase was primarily driven by higher non-interest income of $1 billion, which increased $593 million from the prior year quarter. This increase in non-interest income was primarily driven by net gains from interest rate risk management activities, higher revenues from health for sale loan purchase and securitization activities, and favorable fair value changes from spreads.
Speaker Change: $503 million from the prior year quarter.
Speaker Change: This increase was primarily driven by higher noninterest income of $1 billion, which.
Speaker Change: <unk> $593 million from the prior year quarter.
Speaker Change: This increase in noninterest income was primarily driven by net gains from interest rate risk management activities higher revenues from held for sale loan purchase and securitization activities and favorable fair value changes from spreads.
Christian M. Lown: Net interest income of $271 million was up 32% year-over-year, primarily driven by higher yields on mortgage loans as a result of higher interest rates in the larger average PC portfolio. The multifamily provision for credit losses was an expense of $61 million this quarter versus $77 million in the prior year quarter.
Speaker Change: Net interest income of $271 million was up 32% year over year, primarily driven by higher yields on mortgage loans as a result of higher interest rates and the larger average PC portfolio.
Speaker Change: Multifamily provision for credit losses was an expense of $61 million this quarter versus $77 million in the prior year quarter, our multifamily in new business activity was $9 billion for the first quarter up $3 billion or 50% from a year ago.
Christian M. Lown: Our multifamily new business activity was $9 billion for the first quarter, up $3 billion, or 50% from a year ago. Our multifamily business provided financing for 85,000 multifamily rental units this quarter, of which 61% were affordable to low-income families. The Multifamily Mortgage Portfolio increased 4% year-over-year to $443 billion. Approximately 94% of the Multifamily Mortgage Portfolio was covered by credit enhancements at the end of this quarter. The multifamily delinquency rate at the end of the quarter was 34 basis points, up 21 basis points versus 13 basis points at the end of March 2023.
Speaker Change: Multifamily business provided financing for 85000 multifamily rental units this quarter of which 61% were affordable to low income families.
Speaker Change: The multifamily mortgage portfolio increased 4% year over year to $443 billion <unk>.
Speaker Change: Approximately 94% of the multifamily mortgage portfolio was covered by credit enhancements at the end of this quarter.
Speaker Change: The multifamily delinquency rate at the end of the quarter was 34 basis points up 21 basis points versus 13 basis points at the end of March 2023.
Christian M. Lown: This increase was primarily driven by delinquency in our floating rate loans and small business loans portfolio. Additionally, 94% of these delinquent loans had credit enhancement coverage. On the capital front, our net worth increased to $50.5 billion at the end of the quarter, representing a 29% increase year over year. In conclusion, Freddie Mac helped 279,000 families purchase, refinance, or rent a home while delivering solid financial results this quarter. Importantly, most of the liquidity we provided supported low- and moderate-income households as well as first-time homebuyers. As affordability challenges are expected to persist, efforts to expand affordability for homeowners and renters will remain a key focus of Freddie Mac. Thank you for joining us today.
Speaker Change: This increase was primarily driven by delinquency in our floating rate loans and small business loans portfolio now.
Speaker Change: 94% of these delinquent loans had credit enhancement coverage.
Speaker Change: On the capital front, our net worth increased to $50 5 billion at the end of the quarter, representing a 29% increase year over year.
Speaker Change: In conclusion, Freddie Mac helped 279000 families purchase refinance or rent a home while delivering solid financial results this quarter.
Speaker Change: Accordingly, most of the liquidity, we provided supported low and moderate income households, as well as first time homebuyers as affordability challenges are expected to persist efforts to expand the affordability for homeowners and renters will remain a key focus of Freddie Mac. Thank you for joining us today.
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