Freddie Mac Q4 2024 Earnings Report

Freddie Mac EPS Results

• Actual EPS: $0.01
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Freddie Mac Revenue Results

• Actual Revenue: $6.33 billion
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Freddie Mac Announcement Details

• Quarter: Q4 2024
• Date: 2/13/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 13, 2025
• Conference Call Time: 9:00AM ET

Freddie Mac (OTCMKTS:FMCC), formally known as the Federal Home Loan Mortgage Corporation, is a U.S. government-sponsored enterprise that supports liquidity, stability and affordability in the residential mortgage market. The company operates in the secondary mortgage market, purchasing qualifying mortgage loans from approved lenders and providing lenders with funds that can be used to make additional home loans.

Freddie Mac finances these activities primarily by pooling mortgages into mortgage-backed securities, including its mortgage participation certificates, and guaranteeing the timely payment of principal and interest to investors. Its business covers single-family mortgages, including products for home purchases and refinancing, as well as multifamily housing finance. Through these activities, Freddie Mac helps expand access to mortgage credit for homebuyers and supports rental housing markets.

Established by Congress in 1970, Freddie Mac serves the United States housing market through a nationwide network of lenders, investors and other housing-industry participants. The company has operated under the conservatorship of the Federal Housing Finance Agency since 2008, following the financial crisis. Its public shares trade over the counter under the symbol FMCC.

Freddie Mac Q4 2024 Earnings Call Transcript

Key Takeaways

• In 2024 Freddie Mac achieved its strongest earnings since 2021, reporting $11.9 billion in net income (+13% YoY) and boosting net worth by 25% to $59.6 billion.
• Freddie Mac purchased over 1 million loans and issued $411 billion of mortgage-backed securities (+18% YoY), enabling financing for nearly 1.6 million families, including 52% first-time buyers and 53% low/moderate-income households.
• Full-year net revenues rose 13% to $23.9 billion, driven by a 6% increase in net interest income and a 55% jump in non-interest income, partially offset by a $0.5 billion credit reserve build in the single-family business.
• The single-family segment reported $9.4 billion in net income (+4% YoY) on a 2% portfolio growth to $3.1 trillion, maintaining strong credit metrics with a 52% weighted average loan-to-value and a 0.59% serious delinquency rate.
• Multifamily results included a 67% YoY surge in net income to $2.5 billion, a 6% portfolio growth to $467 billion, and 65% of new business classified as mission-driven affordable housing financing.

Presentation

[Jeff Markowitz, SVP and Chief External Affairs Officer at Freddie Mac]

Good morning, and thank you for joining us for a presentation of Freddie Mac's fourth quarter and full year 2024 financial results. I'm Jeff Markowitz, SVP and Chief External Affairs Officer. We're joined today by our EVP and CFO, 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 10-K filed today. You'll find the 10-K 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.

[Jeff Markowitz, SVP and Chief External Affairs Officer at Freddie Mac]

With that, I'll turn the call over to Freddie Mac's CFO, Jim Whitlinger.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

Good morning, and thank you for joining our call to review Freddie Mac's fourth quarter and full year financial results. 2024 was a solid year for Freddie Mac. We delivered our strongest earnings since 2021. Our net worth reached nearly $60 billion, and we continued to employ strategies that help families stay in their homes and enhance Freddie Mac's safety and soundness. Overall, the strong financial performance and attention to risk management contributes to liquidity and stability in the U.S. housing finance system. We also continued to support other market participants. For example, last year alone, Freddie Mac acquired more than 1 million loans from over 1,000 lenders of all sizes across the country. We packaged those loans into mortgage-backed securities, or MBS, that attracted investors from around the world to support U.S. housing.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

We purchased loans for cash and issued MBS totaling more than $411 billion in 2024, up 18% from 2023. The proceeds enabled Freddie Mac to help nearly 1.6 million families buy, refinance, or rent a home. Moreover, 52% of the primary home purchases we financed went to first-time homebuyers, and 53% of all home loans we financed were affordable to low and moderate-income families, as were 92% of all the apartment units we financed. Now let's take a deeper look at the financial results making this possible. This morning, we 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.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

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. Full year net revenues of $23.9 billion were up $2.7 billion, or 13% year-over-year. 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. Non-interest 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.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

Provision for credit losses was an expense of $0.5 billion for full year 2024, primarily driven by a credit reserve build in single-family attributable to new acquisitions. Our non-interest expenses were down 3% year-over-year to $8.7 billion, as 2023 non-interest expense included an expense accrual of $313 million related to a previously reported adverse litigation judgment. Our total mortgage portfolio grew 3% year- over-year to $3.6 trillion 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. 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. 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.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

Net revenue for the fourth quarter totaled $6.3 billion, an increase of $956 million, or 18% year-over-year, driven by increases in both net interest income and non-interest income. Fourth quarter net interest income of $5.1 billion 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 net worth. Non-interest income for the fourth quarter was $1.3 billion, an increase of $674 million, or 112% from the prior year quarter. This increase was primarily driven by higher net investment gains. 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.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

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. Turning to our individual business segments, single-family reported full year net income of $9.4 billion, an increase of $318 million, or 4% from the prior year. This increase in net income primarily was driven by an increase in net revenues, which grew 8% year-over-year, or $1.6 billion to $19.8 billion. This increase in net revenues was driven by increases in both net interest income and non-interest income. 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.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

Non-interest income was $1.3 billion, up from $610 million from 2023. This was primarily driven by impacts from interest rate risk management activities and spread-related gains. Provision for credit losses was an expense of $374 million for 2024, primarily driven by a credit reserve build attributable to new acquisitions. 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. House prices increased 4% in 2024, compared to a 6.8% increase in 2023. Our current forecast assumes house prices will grow by 2.7% over the next 12 months and 3.3% over the subsequent 12 months, whereas our December 2023 forecast assumed an increase of 2.8% in the next 12 months, followed by 2% growth in the subsequent 12 months.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

The single-family allowance for credit losses coverage ratio at the end of the year was 21 basis points, one basis point higher than a year earlier. Full year new business activity was $346 billion, up $46 billion, or 15% from 2023, as both refinance and purchase activity increased during the year. Home purchase volume of $286 billion accounted for 83% of our total new business activity for the year. Mortgage rates remained higher in 2024, with the average 30-year fixed mortgage rate peaking at 7.2% in May of 2024. According to our Primary Mortgage Market Survey, the average rate for the 30-year fixed at the end of 2024 was 6.85%, up from 6.61% on December 31st, 2023. As I noted earlier, first-time homebuyers represented 52% of new single-family home loan purchases.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

The average net guarantee fee rate charged on new business was 55 basis points, down one basis point from 2023. 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. Our single-family mortgage portfolio increased 2% year-over-year to $3.1 trillion at the end of 2024. Our single-family portfolio credit characteristics remained strong, with a weighted average current loan-to-value ratio at 52% and the weighted average current credit score at 755. Our single-family serious delinquency rate was 59 basis points as of December 31st, 2024, up four basis points from 55 basis points at the end of 2023. This increase in the serious delinquency rate was primarily due to recent hurricanes. We have historically observed temporary increases in delinquency rates following such events.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

During the year, we helped approximately 77,000 families remain in their homes through loan workouts. At the end of the year, 62% of our single-family portfolio had some form of credit enhancement. Moving to Multifamily, the business reported full year net income of $2.5 billion, up $1 billion, or 67% from the prior year. This was primarily driven by both higher net revenues and lower provision for credit losses in 2024. Full year net revenues of $4.1 billion increased 38% year-over-year. Net interest income of $1.2 billion increased 38%, or $339 million year-over-year, primarily driven by continued growth in the mortgage portfolio. Non-interest income was $2.9 billion, 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.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

The provision for credit losses for 2024 was an expense of $102 million, down $198 million from 2023. 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. A credit reserve build due to increased uncertainty in forecasted economic and Multifamily market conditions, as well as deterioration in overall loan performance, drove 2023 provision for credit loss expense of $300 million. Total new business activity for 2024 was $65 billion, 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. Approximately 65% of this activity in 2024, based on UPB, was mission-driven, affordable housing, exceeding FHFA's minimum requirement of 50%.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

In 2024, we securitized $55 billion of loans, $2 billion higher than the $53 billion in the prior year. Fully guaranteed securitizations made up 45% of the total issuances, up from 32% in 2023. The average guarantee fee rate on our total guarantee exposures increased to 51 basis points at the end of this year, up 5 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. The Multifamily delinquency rate at the end of the year was 40 basis points, up from 28 basis points at the end of 2023. This increase was primarily driven by an increase in delinquent floating-rate loans, including Small Balance Loans that are in their floating-rate period.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

97% of the delinquent loans in the Multifamily mortgage portfolio had credit enhancement coverage, reducing our credit exposure. So, at year-end, 91% of the Multifamily mortgage portfolio was covered by credit enhancements. Our net worth increased to $59.6 billion at the end of the year, representing a 25% increase from 2023. 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 include Freddie Mac's forbearance program, which offers mortgage relief for up to 12 months without incurring late fees or penalties. We also provide dedicated resources to renters in apartment buildings to help them plan and prepare for natural disasters, as well as respond and recover after they strike.

[Jim Whitlinger, EVP and CFO at Freddie Mac]

Providing this critical support to owners and renters not only benefits communities, investors, and our company. It's the right thing to do. In conclusion, 2024 was another strong year for Freddie Mac, as we made home possible for nearly 1.6 million families, provided billions in liquidity to the markets, and built our financial strength. 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.

Participants

Executives

• Jeff Markowitz, SVP and Chief External Affairs Officer
• Jim Whitlinger, EVP and CFO