Freddie Mac Finished Q2 in Black; No Treasury Draw Needed

Freddie Mac announced this morning that it will not require any infusion of cash from the U.S. Treasury following its profitable second quarter operations.  The company will also pay $1.8 billion to the Treasury as a dividend on the 10% senior preferred stock the department holds. 

During fiscal 2012 to date Freddie Mac has paid $3.6 billion in dividends while drawing $0.02 billion in financial support from the government.  In FY2011 it paid $6.5 billion and drew $7.6 billion.  Since it was placed in federal conservatorship in August 2008 the net draw has been $52.2 billion.

The government sponsored enterprise (GSE) reported net interest income during the quarter was $4.4 billion, a $0.1 billion decrease from Q1.  However provisions for credit losses decreased from $1.8 billion to $0.2 billion and derivative losses from $1.1 billion to $0.9 billion.  Non-interest income rose from an $(0.4) billion loss to $0.1 billion.  This resulted in net income for the second quarter of $3.0 billion compared to $577 million one year earlier and comprehensive income of $2.9 billion compared to $1.8 billion.  Freddie Mac had a net worth of $1.1 billion at June 30, 2012.

During the first half of 2012 the company has assisted in 781,000 refinancing transactions and 143,000 purchases of homes.  It has also participated in financing 193,000 multi-family housing units.  The company provided $215 billion in market liquidity so far this year, $163 billion of which was for refinancing.  Since 2009 the company has purchased about $1.1 trillion in refinance mortgages which it estimates have saved 5.2 million households approximately $2,500 per year in interest payments.

Foreclosure prevention efforts by Freddie Mac have reached 81,000 families thus far in 2012 and 697,000 since the beginning of conservatorship.  The cumulative totals break down into 373,000 loan modifications, 117,000 repayment plans, 78,000 forbearance agreements, and 129 short sales or deeds in lieu.  As can be seen in the chart below, these loan mitigation efforts have, from the beginning been slightly more successful than the 50 percent generally expected from such programs.  The success rate has grown fairly steadily with each quarter.

Harp 2.0 refinancing through Freddie Mac has reached over 200,000 borrowers this year.  This is over one-quarter of the total number of HARP refinancings since the program began in 2009. 

Freddie Mac said it has continued to improve the credit quality of its portfolio.  The average weighted loan to value (LTV) ratio of loans purchased in the second quarter for its Credit Guarantee Portfolio was 66 percent compared to 72 percent in the 2005-2008 period.  The average weighted credit score was 762 compared to 723 during the housing boom.

The single family delinquency rate was 3.45 percent at the end of the quarter, down from 3.51 percent at the end of the first quarter.  The Mortgage Bankers Association reports that nationally the serious delinquency rate was 7.44 percent at the end of March 2012, so the Freddie Mac rate is well below national norms.  The delinquency rate on multi-family loans was 0.27 percent, up slightly from the Q1 figure of 0.23 percent but again, according to the company, lower than industry benchmarks.

As noted above, provisions for credit losses shrunk from $1.8 billion in the first quarter of 2012 to $0.2 billion in the current quarter.  The company now has loan loss reserves of $35.8 billion compared to $38.3 billion at the end of Q1.