Freddie Mac has reported net income of $2.7 billion for the third quarter of 2023 [1], an increase of 104% year-over-year, with the increase driven by a credit reserve release in single-family in the current period compared to a credit reserve build in single-family in the prior period.
The government-sponsored enterprise (GSE) reported net revenues were $5.7 billion, up 10% year-over-year, driven by higher net interest income and non-interest income. Net interest income was $4.7 billion, up 4% year-over-year, primarily driven by higher investments net interest income as a result of higher short-term interest rates, partially offset by lower deferred fee income due to slower mortgage prepayment activity. Non-interest income was $0.9 billion, up 50% year-over year, primarily driven by higher guarantee income in Multifamily and higher net investment gains.
“Freddie Mac delivered solid third quarter earnings while supporting the U.S. housing finance system,” said Michael J. DeVito, CEO of Freddie Mac [2]. “Fifteen years after entering conservatorship, Freddie Mac is a stronger, more focused company. Year to date, Freddie Mac has helped make home possible for more than 719,000 single-family homeowners and 292,000 renters and remains strongly committed to the mission of making owning or renting a home affordable and accessible for families across the country.”
DeVito recently informed Freddie Mac’s Board of Directors of his intention to retire as CEO [3] in the first quarter of 2024. Freddie Mac’s Board has announced that it will begin a search for DeVito’s successor, and a smooth transition is anticipated. In the role of Freddie Mac CEO that DeVito has held since June 2021, he currently oversees all daily aspects of the GSE, in addition to serving as a member of the company's Board of Directors. As CEO, DeVito works to ensure that Freddie Mac fulfills its mission of providing liquidity, stability, and affordability to the nation’s housing market, focusing the GSE on four priorities: advancing affordable housing, practicing risk management excellence, growing talent, and delivering strong financial results.
The GSE also reported that benefit for credit losses was $0.3 billion for the third quarter of 2023, primarily driven by a credit reserve release in single-family due to increases in observed and forecasted house price appreciation, partially offset by a credit reserve build in multifamily due to deterioration in overall loan performance. The provision for credit losses of $1.8 billion for Q3 of 2022 was primarily driven by a credit reserve build in single-family due to deterioration in housing market conditions, including lower observed and forecasted house price appreciation.
Other key Q3 highlights included:
- New business activity of $85 billion was reported in the third quarter, down 30% year-over-year, as both home purchase activity and refinance activity slowed due to higher mortgage interest rates.
- The GSE’s mortgage portfolio of $3 trillion was up 2% year-over-year, as portfolio growth has moderated in recent periods due to the slowdown in new business activity.
- The reported serious delinquency rate was 0.55%, down from 0.67% as of September 30, 2022.
- The GSE completed approximately 18,000 loan workouts.
- Sixty-two percent of its mortgage portfolio was covered by credit enhancements.
- New business activity stood at $13 billion, down 7% year-over-year, as higher mortgage interest rates have reduced demand for multifamily financing.
- Freddie Mac’s mortgage portfolio stood at $432 billion in Q3, up 4% year-over-year, as portfolio growth has moderated in recent periods due to a slowdown in new business activity.
- The GSE reported that the delinquency rate stood at 0.24% in Q3, up from 0.13% as of September 30, 2022.
- Ninety-five percent of Freddie Mac’s mortgage portfolio was covered by credit enhancements.
The company provided financing for 118,000 multifamily rental units. 66% of the eligible multifamily rental units financed were affordable to low-income families. The multifamily delinquency rate increased to 0.24% as of September 30, 2023, primarily driven by an increase in delinquent loans in Freddie Mac’s senior housing and small balance loan portfolios. 94% of the delinquent loans in the multifamily mortgage portfolio have credit enhancement coverage, while 95% of all loans in the multifamily mortgage portfolio have credit enhancement coverage.
The unpaid principal balance (UPB) of mortgage loans covered by new credit risk transfer (CRT) transactions increased in Q3 of 2023, compared to Q3 of 2022, primarily due to the issuance of Multifamily Credit Insurance Pool (MCIP) and Structured Credit Risk (SCR) Trust note transactions.
Just yesterday, Fannie Mae has reported $4.7 billion [4] in net income for the third quarter of 2023, with the net worth of the GSE reaching $73.7 billion as of September 30, 2023. Quarter-over-quarter, Fannie Mae reported that net income decreased $295 million in the third quarter of 2023, compared to second quarter of 2023, primarily driven by a decrease in benefit for credit losses, partially offset by an increase in fair value gains. Net interest income remained strong in Q3, primarily driven by base guaranty fee income.