Freddie Mac reports net income of $2.5B in Q2 2022

Freddie Mac’s net income for the second quarter slipped to $2.5 billion, a 33% year-over-year decline, as it grapples with the mortgage sector’s vulnerability to fluctuations in interest rates.

Freddie Mac’s net income for the year so far has decreased to $6.3 billion compared to $6.4 billion in 2021. But while Freddie Mac’s net income was down from the $3.8 billion it made in the first quarter, the company has still brought in more revenue year-to-date compared to last year. Freddie Mac saw $11.3 billion in the first six months of 2022, compared with last year’s $11.1 billion by this time.

The smaller of the two government-sponsored enterprises now has a net worth of $34.1 billion, up from $31.7 billion the prior quarter and $22.4 billion at the end of June 2021. The U.S. Treasury, which holds a majority stake in Freddie Mac, and the Federal Housing Finance Agency, its conservator, allowed the GSEs to retain earnings starting in 2019.

The Federal Reserve’s efforts to curb inflation have been devastating for mortgage firms who banked on relatively lower or stable mortgage rates. The rate for a thirty-year mortgage was 3.01% at the end of September 2021, and this week reached 5.3% per Freddie Mac’s latest survey.

For GSEs, rapidly declining rates can pose a challenge during the period between aggregating loans from lenders and selling them to investors. Multifamily loans take longer than single-family loans to aggregate and then sell to investors, making that business more vulnerable to spread-widening.

But the GSE’s single-family hedging strategy mitigated, in part, the fallout from rapidly declining rates.

Higher gains on single-family partially offset the $410 million, 82% year-over-year decrease in multifamily investment gains. In the second quarter of 2022, Freddie Mac reported $321 million in investment gains, compared to $636 million in 2021’s second quarter, a 49% decrease.

Freddie Mac bought $138 billion in single-family refinance and purchase mortgages during the quarter, compared to $207 billion the prior quarter. Almost two thirds — 62% — of loans Freddie Mac acquired in the second quarter were purchase mortgages, up from 45% in the first quarter. Total refinances Freddie Mac purchase declined sharply, to $52 billion from $114 billion the prior quarter. 

The average loan size for single-family mortgages the GSE acquired in the second quarter of 2022 was $294,000, down from $300,000 in the first quarter.

The guarantee fees Freddie Mac charged rose to 52 basis points from 49 the prior quarter,  primarily due to higher credit fees on some high balance and second home loans it started charging in April.

On the earnings call announcing the results, CEO Michael DeVito touted the company’s initiative to encourage landlords to report on-time rental payments. According to DeVito, 77,000 rental households over 800 multifamily properties have participated.

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