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How Freddie Weathered Litigation in Q3

shutterstock_345270293Freddie Mac Tuesday released its Q3 financial report [1]. Overall, the GSE reported solid gains in the quarter, declaring a net worth of $5.3 billion and a comprehensive income of $4.7 billion.

That income was driven by a $2.9 billion (after-tax) benefit from a non-agency, mortgage-related securities litigation settlement. Excluding that settlement, Freddie reported a $1.8 billion profit for the quarter.

Like its comprehensive income, Freddie’s net income in Q3 was also $4.7 billion; its net and comprehensive incomes represent increases of $3 billion and $2.7 billion, respectively, over the second quarter. Both increased $2.3 billion from the prior year.

“We clearly had a strong quarter,” said Freddie CEO Donald Layton. He said the profit in the face of litigation “reflects the growing strength of our business model as well as an improving quality of execution.”

Freddie’s total guarantees portfolio for Q3 finished close to $2 trillion, 5 percent higher than in Q3 of 2016. That despite a 15 percent drop in its total investments portfolio, which finished the quarter at $349 billion. Freddie’s total mortgage-related investments portfolio also declined, by 13 percent to $267 billion, compared to a year ago.

The GSE this year has provided just shy of $300 billion in liquidity to the mortgage market through Q3 2017. It also has returned $8.7 billion in aggregate cash dividends to Treasury [2] so far this year. Cumulative since 2008, that amounts to $110 billion returned, or almost $39 billion more than cumulative cash draws of $71.3 billion received from Treasury.

Freddie also reported a lingering, if diminishing, capital reserve of $600 million as of the end of September. The capital reserve is expected to be zero by January 1.

“We’re better at managing our risks, better at disposing of legacy assets, and getting better all the time at serving our customers,” Layton said. “We’re proud of this transformation, and we’re committed to getting even better.”