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Freddie Mac's net income for the first quarter of 2015 totaled $524 million, nearly double the total of a profitable but somewhat slow fourth quarter, according to Freddie Mac's Q1 2015 Financial Report released Tuesday morning.
Derivative losses were largely responsible for dropping Freddie Mac's net income by nearly $2 billion from Q3 to Q4 down to $227 million, but the GSE responded by nearly doubling that net income total in Q1 to $524 million. It marked the 14th consecutive quarter of profitability for Freddie Mac.
In Q1, derivative losses declined to $2.4 billion, down from $3.4 billion the previous quarter. About $1.8 billion of Q1's derivative losses were related to fair value charges, according to Freddie Mac.
Comprehensive income nearly tripled in Q1 from the previous quarter, jumping from $251 million in Q4 up to $746 million in Q1. According to Freddie Mac, the increases in net income and comprehensive income were primarily driven by the drop in derivative losses amid declining interest rates and a less-flattening yield curve in Q1. Also in Q1, certain seriously delinquent single-family mortgage loans were reclassified from held-for-investment to held-for-sale.
"Our strong business momentum from last year carried into the first quarter, enabling us to again produce earnings despite a continued declining rate environment, so we can return further dividends to taxpayers,” said Donald H. Layton, CEO of Freddie Mac. "We continue to focus on serving our growing customer base better to support the U.S. economy, innovating to become a more competitive company, and reducing risk to the taxpayer. We are also working under FHFA leadership to make the industry stronger, with a growing focus on responsibly increasing access to affordable housing for the nation’s borrowers and renters."
According to Freddie Mac, Q1 results were driven by net interest income, which totaled $3.6 billion for the quarter. Guarantee fees accounted for 40 percent of the net interest income during the quarter.
"The company’s use of derivatives reduces exposure to interest-rate risk on an economic basis (duration gap continues to average zero months)," Freddie Mac said in the announcement. "However, this can result in significant accounting volatility during any given period."
Other highlights of Freddie Mac's Q1 2015 Financial Report include: Helping 14.6 million families buy, rent, or keep their homes since 2009, $2.6 trillion in liquidity provided to the mortgage market during that period, 11.3 million single-family homes, the introduction of the Home Possible Advantage program (which allows single-family homes to be purchased with a down payment as low as 3 percent), and providing foreclosure alternatives to approximately 1.1 delinquent borrowers.
Freddie Mac has returned $92.6 billion to taxpayers, including the June 2015 Dividend Obligation of $746 million; both Freddie Mac and its fellow GSE, Fannie Mae, are required by a 2012 amendment to the terms of their 2008 bailout agreement to continue paying Treasury dividends based on their net worth, even after they've repaid taxpayers in full. The total of $92.6 billion returned to taxpayers is approximately $21.3 billion more than Freddie Mac needed in the 2008 bailout to continue operations ($71.3 billion).
Also on Tuesday morning, Fannie Mae and Freddie Mac announced that their conservator, the Federal Housing Finance Agency, has authorized them to review the salaries of their respective CEOs, Timothy Mayopoulos and Donald Layton, according to a report from Nasdaq. Both CEOs made $600,000 each without bonuses in 2014. The GSEs are reviewing their top executives' pay largely due to concerns that the GSEs will not be able to stay competitive because the salaries of their CEOs are less than those of some lower-ranked executives.
Freddie Mac announced its Q1 results Tuesday morning via webcast. A replay of the webcast, and all other information related to Freddie Mac's Q1 results, can be accessed by clicking on the Enterprise's investor relations page.
