Q2 2025 Federal Home Loan Mortgage Corp Earnings Call

Speaker #1: Good morning and thank you joining us for a presentation of Freddie Mac's second quarter 2025 financial results. I'm Jeff Markowitz, Senior Vice President and Chief External Affairs Officer.

Jeff Markowitz: Good morning, and thank you for joining us for a presentation of Freddie Mac's second quarter 2025 financial results. I'm Jeff Markowitz, Senior Vice President and Chief External Affairs Officer. We're joined today by Executive Vice President and 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 10-Q filed today. You'll find the 10-Q, earnings press release, and related materials posted on 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.

Speaker #1: We're joined today by Executive Vice President and 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.

Speaker #1: 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-Q filed today.

Speaker #1: You'll find the 10-Q earnings press release and related materials posted on the Investor Relations section of Freddie .com. This call is recorded and a replay will soon be available on Freddie Mac.com.

Speaker #1: We ask that the call not be rebroadcast or transcribed. With that, I'll turn the call over to Freddie Mac CFO, Jim Whitlinger.

Jeff Markowitz: With that, I'll turn the call over to Freddie Mac's CFO, Jim Whitlinger. Good morning, and thank you for joining our call to review Freddie Mac's second quarter performance. We'll begin with the bottom line. Second quarter net income of $2.4 billion drove our company's net worth to $65 billion at quarter end. The total mortgage portfolio at end of second quarter stands at $3.6 trillion, and we provided more than $100 billion of liquidity to the US housing finance system. Those dollars helped make home possible for more than 360,000 American families in the second quarter alone. Many of those families qualified for a mortgage for the first time. In fact, of the 206,000 home buyers we helped in the quarter, more than 100,000 purchased their very first home, and most of the houses and apartments we helped finance were within reach for middle-class families.

Speaker #2: Good morning and thank you for joining our call to review Freddie Mac's second quarter performance. We'll begin with the bottom line. The quarter net income $2.4 billion drove our company's net worth to $65 billion at quarter-end.

Speaker #2: The total mortgage portfolio at the end of the quarter stands at $3.6 trillion, and we provided more than $100 billion of liquidity to the U.S.

Speaker #2: housing finance system. Those dollars helped make home possible for more than 360 thousand American families in the second quarter alone. Many of those families qualified for a mortgage for the first time.

Speaker #2: In fact, of the 206,000 homebuyers we helped in quarter, more than 100,000 purchased their very first home. And most of the houses and apartments we helped finance were within reach for middle-class families.

Speaker #2: Fifty-three percent of the single-family homes and 95 percent of eligible rental units we financed were affordable to low and moderate-income households. Now, let's look at the details of our quarterly financial performance.

Jeff Markowitz: 53% of the single-family homes and 95% of eligible rental units we financed were affordable to low and moderate-income households. Now let's look at the details of our quarterly financial performance. As I mentioned earlier, we earned net income of $2.4 billion this quarter, a decrease of $378 million, or 14% year-over-year. This decrease was primarily driven by higher provision for credit losses in both of our business segments. The higher provision taken this quarter was due to modeled and observed house price declines and lower forecasted house price appreciation. Second quarter net interest income was $5.3 billion, up $371 million, or 8% year-over-year. This increase was driven by continued growth in the mortgage portfolio, which grew 2% year-over-year, and lower funding costs partially offset by lower yields on short-term investments.

Speaker #2: As I mentioned earlier, we earned net income of $2.4 billion this quarter, a decrease of $378 million or 14 percent year over year. This decrease was primarily driven by higher provision for credit losses in both of our business segments.

Speaker #2: The higher provision taken this quarter was due to modeled and observed house price declines and lower forecasted house price appreciation. The second quarter net interest income was $5.3 billion up $371 million or 8 percent year over year.

Speaker #2: This increase was driven by continued growth in the mortgage portfolio which grew 2 percent year over year, and lower funding costs partially offset by lower yields on short-term investments.

Speaker #2: Our non-interest income of $617 million for the second quarter declined $443 million or 42 percent from the prior year quarter. This was primarily due to lower investment gains in our multifamily business.

Jeff Markowitz: Our non-interest income of $617 million for the second quarter declined $443 million, or 42% from the prior year quarter. This was primarily due to lower investment gains in our multifamily business. As noted, our provision for credit losses increased this quarter to $783 million. The provision for credit losses was $394 million in the prior year quarter, mainly attributable to new acquisitions in the single-family business. Our total mortgage portfolio at the end of the quarter was $3.6 trillion, a 2% increase year-over-year. Turning to our individual business segments, the single-family business reported net income of $2.1 billion for the quarter, down $192 million, or 8% year-over-year. Single-family net revenues of $5.1 billion increased slightly by $41 million, or 1% from the prior year quarter. This increase was primarily driven by a $263 million, or 6% increase in net interest income.

Speaker #2: As noted, our provision for credit losses increased this quarter to $783 million dollars. The provision for credit losses was $394 million in the prior year quarter, mainly attributable to new acquisitions in the single-family business.

Speaker #2: Our total mortgage portfolio at the end the quarter was $3.6 trillion, a 2 percent increase year over year. Turning to our individual business segments, the single-family business reported net income of $2.1 billion for the quarter down $192 million or 8 percent year over year.

Speaker #2: Single-family net revenues of $5.1 billion increased slightly by $41 million or 1 percent from the prior year quarter. This increase was primarily driven by a $263 million or 6 percent increase in net interest income.

Speaker #2: Net interest income benefited from continued growth in our single-family mortgage portfolio, and lower funding costs partially offset by lower yields on short-term investments. Non-interest income of $237 million declined by $222 million or 48 percent from the prior year quarter.

Jeff Markowitz: Net interest income benefited from continued growth in our single-family mortgage portfolio and lower funding costs, partially offset by lower yields on short-term investments. Non-interest income of $237 million declined by $222 million, or 48% from the prior year quarter. This decline was primarily driven by impacts from interest rate risk management activities. Our provision for single-family credit losses was an expense of $622 million this quarter, primarily due to a credit reserve bill driven by modeled and observed house price declines, lower forecasted house price appreciation, and provision on new originations under CISL recognition as we continue to grow our single-family portfolio. The provision in the prior year quarter was an expense of $315 million, which was primarily attributable to new acquisitions in the quarter. Our modeled observed house prices declined 0.6% this quarter.

Speaker #2: This decline was primarily driven by impacts from interest rate risk management activities. Our provision for single-family credit losses was an expense of $622 million this quarter, primarily due to a credit reserve bill driven by modeled and observed house price declines, lower forecasted house price appreciation, and provision on new originations under CISO recognition as we continue to grow our single-family portfolio.

Speaker #2: The provision in the prior year quarter was an expense of $315 million which was primarily attributable to new acquisitions in the quarter. Our modeled observed house prices declined 0.6 percent this quarter, our current house price forecast assumes an increase of 1.3 percent over the next 12 months, and 0.4 percent over the subsequent 12 months.

Jeff Markowitz: Our current house price forecast assumes an increase of 1.3% over the next 12 months and 0.4% over the subsequent 12 months. This is a change from our forecast at the end of last quarter, which assumed 4.2% growth over the next 12 months and 2.8% growth over the subsequent 12 months. The single-family allowance for credit losses at the end of the quarter was $7.5 billion. This translated to an allowance for credit losses coverage ratio of 23 basis points, up from 21 basis points at the end of the year 2024 and as of the prior quarter. The single-family serious delinquency rate declined 4 basis points quarter over quarter from 59 to 55 basis points. Year-over-year, the delinquency rate increased 5 basis points from 50 to 55 basis points.

Speaker #2: This is a change from our forecast at the end of last quarter which assumed 4.2 percent growth over the next 12 months and 2.8 percent growth over the subsequent 12 months.

Speaker #2: The single-family allowance for credit losses at the end of the quarter was $7.5 billion, this translated to an allowance for credit losses coverage ratio of 23 basis points up from 21 basis points at the end of the year 2024 and as of the prior quarter.

Speaker #2: The single-family serious delinquency rate declined 4 basis points quarter over quarter from 59 to 55 basis points. Year over year, the delinquency rate increased 5 basis points from 50 to 55 basis points.

Speaker #2: This was primarily driven by a higher serious delinquency rate for loans originated during 2022 and later as well as lingering impacts from hurricanes that occurred in late 2024.

Jeff Markowitz: This was primarily driven by a higher serious delinquency rate for loans originated during 2022 and later, as well as lingering impacts from hurricanes that occurred in late 2024. In the second quarter, we helped approximately 24,000 families remain in their homes through loan workouts. Our single-family mortgage portfolio at the end of the quarter was $3.1 trillion, up 2% year-over-year. Credit characteristics of our single-family portfolio continue to remain strong, with a weighted average current loan-to-value ratio at 53% and the weighted average current credit score at 754. At the end of the quarter, 62% of our single-family portfolio had some form of credit enhancement. New business activity totaled $94 billion this quarter, up $16 billion from the first quarter of this year. First-time home buyers represented 53% of our new single-family home purchase loans. Higher mortgage rates continue to impact both purchase and refinance activity.

Speaker #2: In the second quarter, we helped approximately 24,000 families remain in their homes through loan workouts. Our single-family mortgage portfolio at the end of the quarter was $3.1 trillion, up 2 percent year over year.

Speaker #2: Credit characteristics of our single-family portfolio continue to remain strong, with a weighted average current loan-to-value ratio at 53 percent and the weighted average current credit score at 754 percent.

Speaker #2: At the end of the quarter, 62 percent of our single-family portfolio had some form of credit enhancement. New business activity totaled $94 billion this quarter, up $16 billion from the first quarter of this year.

Speaker #2: First-time homebuyers represented 53 percent of our new single-family home purchase loans. Higher mortgage rates continue to impact both purchase and refinance activity, refinance activity accounted for a little over 19 percent of our total new business activity this quarter.

Jeff Markowitz: Refinance activity accounted for a little over 19% of our total new business activity this quarter. For new acquisitions, our weighted average original loan-to-value was 77%, and weighted average credit score was 759. The average estimated guarantee fee charged on new business was 54 basis points. The 30-year mortgage rate peaked at 6.89% during the quarter and ended the quarter at 6.77%. That was up from 6.65% at the end of the first quarter and slightly down from 6.86% at the end of the prior year quarter. Moving on to multifamily, the segment reported net income of $295 million. That was down $186 million, or 39% from the prior year quarter. This decrease was primarily driven by lower non-interest income, which declined 37%, or $221 million year-over-year.

Speaker #2: For new acquisitions, our weighted average original loan-to-value was 77 percent, and weighted average credit score was 759. The average estimated guarantee fee charged on new business was $54 basis points.

Speaker #2: The 30-year mortgage rate peaked at 6.89 percent during the quarter and ended the quarter at 6.77 percent. That was up from 6.65 percent at the end of the first quarter and slightly down from 6.86 percent at the end of the prior year quarter.

Speaker #2: Moving on to multifamily, the segment reported net income of $295 million, that was down $186 million or 39 percent from the prior year quarter.

Speaker #2: This decrease was primarily driven by lower non-interest income which declined 37 percent or 221 million dollars year over year. The decrease in non-interest income was primarily driven by lower revenues from help-for-sale loan purchase and securitization activities as well as impacts from interest rate risk management activities.

Jeff Markowitz: The decrease in non-interest income was primarily driven by lower revenues from held-for-sale loan purchase and securitization activities, as well as impacts from interest rate risk management activities. The decline in non-interest income was partially offset by net interest income of $401 million, which was up $108 million, or 37% year-over-year. The increase in net interest income was primarily driven by a change in the company's multifamily business strategy that resulted in an increase in the volume of fully guaranteed securitizations. The multifamily provision for credit losses was an expense of $161 million this quarter versus $79 million in the prior year quarter. The provision for credit losses this quarter was primarily driven by a credit reserve bill attributable to new loan purchase commitment and acquisition activity, coupled with deterioration in the credit performance of certain delinquent loans.

Speaker #2: The decline in non-interest income was partially offset by net interest income of $401 million dollars which was up 108 million dollars or 37 percent year over year.

Speaker #2: The increase in net interest income was primarily driven by a change in the company's multifamily business strategy that resulted in an increase in the volume of fully guaranteed securitizations.

Speaker #2: The multifamily provision for credit losses was an expense of $161 million this quarter versus $79 million in the prior year quarter. The provision for credit losses this quarter primarily driven by a credit reserve billed attributable to new loan purchase commitment and acquisition activity coupled with deterioration in the credit performance of certain delinquent loans.

Speaker #2: Our multifamily new business activity was $12 billion for the second quarter, up $2 billion from the last quarter, the business provided financing for 99,000 multifamily rental units this quarter with 74 percent of eligible units affordable to low-income families.

Jeff Markowitz: Our multifamily new business activity was $12 billion for the second quarter, up $2 billion from the last quarter. The business provided financing for 99,000 multifamily rental units this quarter, with 74% of eligible units affordable to low-income families. The multifamily mortgage portfolio increased 4% year-over-year to $466 billion. 92% of the multifamily mortgage portfolio was covered by credit enhancements at the end of the quarter. The multifamily delinquency rate at the end of the quarter was 47 basis points, up 9 basis points from the end of June 2024. This increase was primarily driven by delinquency in our floating-rate loans and small balance loans. 97% of these delinquent loans had credit enhancement coverage. On the capital front, our net worth increased to $65 billion at the end of the quarter, representing a 22% increase year-over-year.

Speaker #2: The multifamily mortgage portfolio increased 4 percent year over year to $466 billion, 92 percent of the multifamily mortgage portfolio was covered by credit enhancements at the end of the quarter.

Speaker #2: The multifamily delinquency rate at the end of the quarter was 47 basis points up 9 basis points from the end of June 2024, this increase was primarily driven by delinquency in our floating-rate loans and small balance loans.

Speaker #2: 97 percent of these delinquent loans had credit enhancement coverage. On the capital front, our net worth increased to $65 billion at the end of the quarter, representing a 22 percent increase year over year.

Speaker #2: I'll conclude by noting that our efforts to reduce costs for Freddie Mac, lenders, borrowers, and renters are ongoing. As I discussed last quarter, the actions of the Director of U.S.

Jeff Markowitz: I'll conclude by noting that our efforts to reduce costs for Freddie Mac, lenders, borrowers, and renters are ongoing. As I discussed last quarter, the actions of the Director of US Federal Housing, Bill Pulty, are enabling further transformation of the business, making us more efficient and effective. We're working closely with US Federal Housing to lower expenses, increase revenue, and improve productivity wherever we can. For example, we are working together to increase competition among the credit scoring agencies. These actions ultimately will result in an even safer and stronger Freddie Mac and a better US housing finance system. That is our mission. Thank you for joining us.

Speaker #2: Federal Housing, Bill Poulty, are enabling further transformation of the business, making us more efficient and effective. We're working closely with U.S. Federal Housing to lower expenses, increase revenue, and improve productivity wherever we can.

Speaker #2: For example, we are working together to increase competition among the credit-scoring agencies. These actions ultimately will result in an even safer and stronger Freddie Mac and a better U.S.