Q3 2024 Federal Home Loan Mortgage Corp Earnings Call

Good morning and thank you for joining us for a presentation of Freddie Mac's third quarter 2024 financial results. I'm Jeff Markowitz, deputy CAO and SVP of External Affairs and Corporate Communications. We have joined today by our interim chief financial officer, Jim Whitlinger.

Before we begin, we'd like to point out that during the call, Mr. Whitlinger 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 10Q file today. You'll find a 10Q earnings press release and related materials posted on the Investor Relations section of FreddieMac.com.

Speaker Change: This call is recorded in a replay will soon be available on Freddie Mac.com. We asked that the call not be rebroadcast or transcribed. With that, I'll turn it into the call over to Freddie Mac's interim CFO, Jim Whitlinger.

Jim Whitlinger: Good morning, and thank you for joining our call to review Freddie Mac's third quarter performance. The company delivered another solid quarter, we are in $3.1 billion in the third quarter, and our net worth increased to $56 billion.

Jim Whitlinger: We helped 450,000 families purchase, refinance, or run a home.

Jim Whitlinger: Once again, more than half, 51% of the primary home purchases we've financed.

Jim Whitlinger: Supported First Time Home Buyers, and 51% of eligible purchase and refinance loans were affordable to low and moderate income families. On the multi-family side, 94% of the eligible rental units be financed or similarly affordable.

Jim Whitlinger: Beyond our efforts to make homophortable, we work to make it sustainable for both runners and homeowners.

Jim Whitlinger: In August, we published a policy framework requiring minimum least standards in multifamily properties with a new Freddie Mac back to Lown.

Jim Whitlinger: Beginning in February 2025, the standards require a five-day grace period for rent payments, a 30-day notice for rent increases, and a 30-day notice of a lease expiration.

Jim Whitlinger: And in September, we reminded homeowners affected by recent hurricanes of the immediate relief options available to them.

Jim Whitlinger: He has include Freddie Macs for Bairns Program, which offers mortgage relief for up to 12 months without incurring a late fee or penalties.

Jim Whitlinger: We also provide dedicated resources to renters and apartment buildings to help them plan and prepare for natural disasters, as well as respond and recover after they strike.

Jim Whitlinger: Freddie Mac Communities and mortgage security investors all benefit alongside renners and homeowners when families are able to continue living in their homes. Now let's take a look at the results in more detail.

Speaker Change: Our net income of $3.1 billion for the quarter was an increase of $420 million or 16% year over year. This increase was primarily driven by an increase in our net revenues and a decline in non-interest expense.

Speaker Change: 3rd quarter net revenues were $5.8 billion and increase of $148 million or 3% year over year. This increase was primarily driven by higher net interest income, which increased $250 million or 5% year over year.

Speaker Change: Primary drivers for the higher net interest income were lower expense related to debt and hedge account in relationships and continued mortgage portfolio growth. Our total mortgage portfolio grew 2% year every year and ended the quarter at $3.5 trillion.

Speaker Change: The increase in net interest income was partially offset by 102 million dollars lower non-interest income, primarily due to lower investment gains in the quarter versus the prior year.

Speaker Change: The benefit for credit losses was $191 million this quarter, driven by a credit reserve release in single family, as a result of lower mortgage interest rates and a credit reserve release in multi-family due to enhancements in the credit loss estimation process.

Speaker Change: In the third quarter of 2023, we had a benefit for credit losses of $263 million, which was primarily driven by credit reserve release and single family due to improvements in house prices.

Speaker Change: 9-inch or expensive $2.2 billion for this quarter was lower by $393 million as the prior year period, included a $313 million expensive curl for an adverse judgment at trial.

Speaker Change: Turning to our individual business segments, single family reported net income of $2.6 billion for the quarter, up $250 million or 11% from the prior year quarter, primarily driven by higher net interest income and lower non-interest expense.

Speaker Change: Single Family Net Interest income of $4.7 billion was up 3% year over year. Primarily driven by higher income on our investment portfolio, which benefited from lower expense related to debt and hedge economy relationships.

Speaker Change: Not interest expense for the quarter was $2 billion, down $344 million or 15% from the prior year quarter, as the prior year quarter included an allocation of $250 million.

Speaker Change: For the $313 million accrual for the adverse judgment at trial, an allergic decrease in credit enhancement recoveries due to a decline in expected credit losses on covered loans.

Speaker Change: Our benefit for single family credit losses this quarter was $99 million.

Speaker Change: primarily driven by a credit reserve release as a result of lower mortgage interest rates. In the prior year quarter, we had a benefit of $304 million, which was primarily driven by a credit reserve release due to improvements in home prices.

Speaker Change: Home prices increased on average 3.6% over the past year, and our forecast assumes home prices will remain flat over the next 12 months, and increased by 0.8% over the subsequent 12 months.

Speaker Change: The single family allowance for credit loss is coverage ratio at the end of the quarter was 21 basis points. Down slightly from 22 basis points a year earlier.

Speaker Change: New Business Activity picked up in the quarter to $98 billion, up 15% or $13 billion from the second quarter. It's both home purchase and refinance volume increased due to lower mortgage interest rates.

Speaker Change: The 30-year mortgage interest rate felt a 6.08% at the end of the third quarter, the lowest we have experienced over the last two years and was down 78 basis points from the end of last quarter and a hundred and twenty-three basis points lower than a year earlier.

Speaker Change: Home purchase volume of $84 billion made up 86% of our total new business activity this quarter.

Speaker Change: First time home buyers represented 51% of new single family home purchase loans. The average estimated guarantee fee rate charged on new business was 57 basis points this quarter, up 3 basis points from last quarter.

Speaker Change: Our single family mortgage portfolio increased 2% year over year to 3.1 trillion dollars.

Speaker Change: Credit characteristics of our single family portfolio remains strong, with the weighted average current loan to value ratio at 52% and the weighted average current credit score at 755.

Speaker Change: At the end of the quarter, 62% of our single family portfolio had some form of credit enhancement.

Speaker Change: The single family serious delinquency rate increased four basis points this quarter to 54 basis points from the historical low to 50 basis points that we saw in the last quarter.

Speaker Change: The SDK rate remains 9 basis points below the pre-COVID rate of 63 basis points at the end of 2019.

Speaker Change: In the third quarter, we helped approximately 18,000 families remain in their homes through loan workouts.

Speaker Change: Moving on to multifamily, the segment reported net income of $532 million and increase a 47% or $170 million from the prior year quarter.

Speaker Change: This increase was primarily driven by a benefit for credit losses in the current quarter and lower non-interest expense compared to the same quarter last year.

Speaker Change: The benefit for credit losses this quarter of ninety two million dollars was primarily driven by a credit reserve release due to enhancements in the credit loss estimation process.

Speaker Change: In the prior quarter, we had a provision for credit losses of $41 million, which was primarily driven by deterioration and overall loan performance.

Speaker Change: The multi-family allowance for credit losses coverage ratio at the end of this quarter was 49 basis points down from 54 basis points a year earlier.

Speaker Change: 9 interest expense was $217 million, down $49 million or 18% year over year. The prior year quarter included an allocation of $63 million for the accrual for the adverse judgment at trial.

Speaker Change: We have seen a slight pickup in demand from all-time family mortgage financing as interest rates decline this quarter.

Speaker Change: Our multi-family business activity was $15 billion for the third quarter. Bringing the year-to-date volume to $35 billion versus $32 billion for the same period last year.

Speaker Change: In the current quarter, we provided financing for 131,000 multi-family rental units with 68% of the eligible multi-family rental units, financed affordable to low-income families, earning 80% or loss of the area meeting income.

Speaker Change: Our multifamily mortgage portfolio increased 5% year over year to $452 billion. Of which 93% was covered by credit enhancements.

Speaker Change: The multi-family delinquency rate was 39 basis points at the end of the quarter, up one basis point from last quarter, and up 15 basis points from the end of September 2023.

Speaker Change: This increase was driven primarily by an increase in delinquent floating rate loans, including small balance loans that are in their floating rate period. 96% of these delinquent loans have credit enhancement coverage.

Speaker Change: On the Capitol front, our net worth increased to $56 billion, representing a 26% increase year over year.

Speaker Change: In conclusion, let me say that Freddie Mac is fully focused on fulfilling its mission.

Speaker Change: We are at our best when delivering strong financial results in serving our important mission.

Speaker Change: We continue to support the nation by helping lenders of all sizes, providing access to sustainable and affordable home financing, addressing issues of housing inequality and providing support and assistance to homeowners who have been impacted by the recent devastating hurricanes.

Speaker Change: Thank you for joining us today.

Speaker Change: Thank you.