Q4 2024 Federal Home Loan Mortgage Corp Earnings Call

Good morning, and thank you for joining us for our presentation of pretty much fourth quarter and full year 'twenty 'twenty four financial results I'm drift, Mark, which SVP and Chief External Affairs Officer, we're joined today by our EVP and Chief Financial Officer, Jim might linger.

Before we begin we'd like to point out that during the call. Mr. Whitman Group 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 10-K filed today, you'll find the 10-K.

Earnings press release and related materials posted on the Investor Relations section of Freddie Mac Dot com.

Speaker Change: This call is recorded and a replay will soon be available on Freddie Mac dotcom, we ask them to call not be rebroadcast or transcribed with that I'll turn the call over to Freddie Mac CFO, Jim with linker.

Speaker Change: Morning, and thank you for joining our call to review, Freddie Mac's fourth quarter and full year financial results.

Speaker Change: 24 was a solid year for Freddie Mac.

Speaker Change: We delivered our strongest earnings since 2021, our net worth reached nearly $60 billion and we continue to employ strategies that help families stay in their homes and enhanced Freddie Mac safety and soundness.

Speaker Change: Overall, the strong financial performance and attention to risk management contributes to liquidity and stability in the U S housing finance system.

Speaker Change: We also continued to support other market participants for.

Speaker Change: For example, last year alone Freddie Mac acquired more than 1 million loans from over 1000 lenders of all sizes across the country.

Speaker Change: We package those loans into mortgage backed securities or MBS.

Speaker Change: And investors from around the world to support U S housing.

Speaker Change: We purchased loans for cash and issued MBS totaling more than $411 billion in 2024.

Speaker Change: Up 18% from 2023.

Speaker Change: The proceeds enabled Freddy Mac to help nearly $1 6 million families by refinance or rent a home.

Speaker Change: Moreover, 52% of the primary home purchases refinanced went to first time homebuyers and 53% of all home loans refinanced were affordable to low and moderate income families. As we're 92% of all the apartment units refinanced.

Speaker Change: Now, let's take a deeper look at the financial results, making this possible.

Speaker Change: This morning, we reported reported full year net income of $11 9 billion, an increase of 13% from the prior year and comprehensive income of $11 9 billion, an increase of 11% from the prior year.

Speaker Change: These increases were primarily driven by higher net revenues, which were partially offset by a credit reserve build compared to a benefit for credit losses in the prior period in our single family business.

Speaker Change: Full year net revenues of $23 $9 billion were up $2 7 billion.

Speaker Change: Our 13% year over year.

Speaker Change: Our 2024 net interest income of $19 $7 billion was up 6% year over year, primarily driven by continued mortgage portfolio growth, which rose 3% year over year and lower funding costs driven by our increase in net worth which grew by 25% year over year.

Speaker Change: Noninterest income was $4 2 billion for full year 2024 up 55% year over year, primarily driven by higher revenues from held for sale loan purchase and securitization activities and lower realized losses on sales of available for sale securities and other net investment gains.

Speaker Change: Provision for credit losses was an expensive <unk> $5 billion for full year 2024, primarily driven by a credit reserve build in single family attributable to new acquisitions.

Speaker Change: Our noninterest expenses were down 3% year over year to $8 7 billion.

Speaker Change: As 2023 noninterest expense included an expense accrual of $313 million related to a previously reported adverse litigation judgment.

Speaker Change: Our total mortgage portfolio grew 3% year over year to $3 six trillion dollars.

Speaker Change: At the end of 2024, driven by a 2% increase in our single family mortgage portfolio and a 6% increase in our multifamily mortgage portfolio.

Speaker Change: Turning to our fourth quarter 2024 results, we reported net income of $3 2 billion, an increase of $308 million or 11% from the fourth quarter of 2023.

Speaker Change: The increase in net income was primarily driven by higher revenues, which were partially offset by a credit reserve build in the single family business.

Speaker Change: Net revenue for the fourth quarter totaled $6 $3 billion, an increase of $956 million or 18% year over year driven.

Speaker Change: Driven by increases in both net interest income and noninterest income.

Speaker Change: Fourth quarter net interest income of $5 1 billion.

Speaker Change: Was up 6% from the prior year quarter. The increase in net interest income was primarily driven by continued mortgage portfolio growth and lower funding costs due to increasing network.

Speaker Change: Noninterest income for the fourth quarter was $1 3 billion, an increase of $674 million or 112% from the prior year quarter.

Speaker Change: This increase was primarily driven by higher net investment gains.

Speaker Change: Provision for credit losses was an expense of $92 million for the fourth quarter of 2024 compared to a benefit for credit losses of $467 million for the fourth quarter of 2023.

Speaker Change: The credit loss provision expense this quarter was primarily driven by a reserve build in both of our business segments, primarily attributable to new acquisitions, while in the prior year quarter. It was driven by a credit reserve release in our single family business due to an improvement in house prices.

Speaker Change: Turning to our individual business segments single family reported full year net income of $9 4 billion.

Speaker Change: An increase of $318 million or 4% from the prior year.

Speaker Change: This increase in net income primarily was driven by an increase in net revenues, which grew 8% year over year or one 6 billion to $19 8 billion.

Speaker Change: This increase in net revenues was driven by increases in both net interest income and noninterest income.

Speaker Change: Net interest income of $18 $5 billion was up 5% year over year, primarily driven by continued mortgage portfolio growth and lower funding costs due to higher net worth.

Speaker Change: Noninterest income was $1 3 billion up from $610 million from 2023.

Speaker Change: This was primarily driven by impacts from interest rate risk management activities and spread related gains.

Speaker Change: Provision for credit losses was an expense of $374 million for 2024, primarily driven by credit reserve build attributable to new acquisitions.

Speaker Change: The benefit for credit losses of $1 $2 billion for 2023 was primarily driven by a credit reserve release due to improvements in house prices.

Speaker Change: House prices have increased 4% in 2024 compared to a six 8% increase in 2023 or.

Speaker Change: Our current forecast assumes house prices will grow by two 7% over the next 12 months and three 3% over the subsequent 12 months, whereas our December 2023 forecast assumed an increase of two 8% in the next 12 months, followed by 2% growth and the subsequent 12 months.

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Speaker Change: The single family allowance for credit losses coverage ratio at the end of the year was 21 basis points.

Speaker Change: One basis point higher than a year earlier.

Speaker Change: Full year, new business activity was $346 billion up 46 billion or 15% from 2023 is both refinance and purchase activity increased during the year.

Speaker Change: Home purchase volume of 286 billion accounted for 83% of our total new business activity for the year.

Speaker Change: Mortgage rates remained higher in 2024 with the average 30 year fixed mortgage rate, peaking at seven 2% in may of 2024.

Speaker Change: According to our primary mortgage market survey the average rate for the 30 year fixed at the end of 2024 was $6 eight 5% up from 661% on December 31 2023.

Speaker Change: As I noted earlier first time homebuyers represented 52% of new single family home loan purchases.

Speaker Change: The average net guarantee fee rate charged on new business was 55 basis points down one basis point from 2023.

Speaker Change: The credit characteristics of our new business remained strong with an average estimated loan to value ratio of 77% and a weighted average credit score of 755.

Speaker Change: Our single family mortgage portfolio increased 2% year over year to $3 one trillion at the end of 2024.

Speaker Change: Our single family portfolio credit characteristics remained strong with a weighted average current loan to value ratio at 52% and a weighted average current credit score at $7 55.

Speaker Change: Our single family serious delinquency rate was 59 basis points as of December 31, 2024.

Speaker Change: Four basis points from 55 basis points at the end of 2023.

Speaker Change: This increase in the serious delinquency rate was primarily due to the recent hurricanes.

Speaker Change: We have historically observed temporary increases in delinquency rates following such events.

Speaker Change: During the year, we helped approximately 77000 families remain in their homes through loan workouts.

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

Speaker Change: Moving to multifamily the business reported full year net income of $2 5 billion up $1 billion or 67% from the prior year.

Speaker Change: This was primarily driven by both higher net revenues and lower provision for credit losses in 2024.

Speaker Change: Full year net revenues of $4 1 billion increased 38% year over year.

Speaker Change: Net interest income of $1 $2 billion increased 38% or $339 million year over year, primarily driven by continued growth in the mortgage portfolio.

Speaker Change: Noninterest income was $2 $9 billion.

Speaker Change: Up 38% year over year, primarily driven by higher revenues from held for sale loan purchase and securitization activities and lower realized losses on sales of available for sale securities and other net investment gains.

Speaker Change: The provision for credit losses for 2024 was an expense of $102 million.

Speaker Change: Down $198 million from 2023 <unk>.

Speaker Change: Provision for credit losses. This year was driven by deterioration in overall loan performance and new loan purchases, which was partially offset by a credit reserve release due to enhancement of our credit loss estimation process.

Speaker Change: Our credit reserve build due to increased uncertainty and forecasted economic and multifamily market conditions as well as deterioration in overall loan performance drove 2023 provision for credit loss expense of $300 million.

Speaker Change: Total new business activity for 2024 was $65 billion.

Speaker Change: An increase of 35% compared to 2023, primarily driven by increased demand for multifamily financing as a result of lower mortgage interest rates during the second half of the year.

Speaker Change: Approximately 65% of this activity in 2024 based on <unk> was mission driven.

Speaker Change: Portable housing exceeding fhfa's minimum requirement of 50%.

Speaker Change: In 2024, we securitized $55 billion of loans 2 billion higher than the $53 billion in the prior year.

Speaker Change: Fully guaranteed securitization is made up 45% of the total issuances up from 32% in 2023.

Speaker Change: The average guaranty fee rate on our total guarantee exposures increased to 51 basis points at the end of this year up five basis points from the prior year, primarily due to continued growth in our fully guaranteed securitization issuances for which we charge higher rates.

Our multifamily mortgage portfolio at the end of 2024 was 467 billion, an increase of 6% year over year.

Speaker Change: The multifamily delinquency rate at the end of the year was 40 basis points up from 28 basis points at the end of 2023.

Speaker Change: This increase was primarily driven by an increase in delinquent floating rate loans, including small balance loans that are in their floating rate period.

Speaker Change: 97% of the delinquent loans in the multifamily mortgage portfolio had credit enhancement coverage, reducing our credit exposure.

Speaker Change: So at year end, 91% of the multifamily mortgage portfolio was covered by credit enhancements.

Speaker Change: Our net worth increased to $59 $6 billion at the end of the year, representing a 25% increase from 2023.

Speaker Change: Finally, I want to take a moment to express our sympathy to everyone affected by the devastating California wildfires those impacted should know that Freddie Mac is here to help we encourage them to contact their mortgage servicers to learn about the immediate relief options now available. These.

Speaker Change: These include Freddie Mac's Forbearance program, which offers mortgage relief for up to 12 months without incurring late fees or penalties.

Speaker Change: 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 <unk>.

Speaker Change: Providing this critical support to owners and renters not only benefits communities investors in our company. It's the right thing to do.

Speaker Change: In conclusion 2024 was another strong year for Freddie Mac as we made home possible for nearly $1 6 million families provided billions and liquidity to the markets and build our financial strength.

Speaker Change: We are already hard at work to ensure we continue making strides in these areas in 2025 and beyond thank you for joining us today.

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