Federal Home Loan Mortgage Corporation
Q2 2021 Earnings Call Transcript

Published: 1 Aug 2021

[Operator:]

Thank you for standing by and welcome to Freddie Mac's Second Quarter 2021 Financial Results Media Call. At this time, all participants are in a listen-only mode. It is now my pleasure to introduce Deputy Chief Administrative Officer, Jeffrey Markowitz.

[Jeffrey Markowitz:]

Good morning and thank you for joining us for a presentation of Freddie Mac's second quarter 2021 financial results. I'm Jeff Markowitz, Deputy Chief Administrative Officer. We are joined today for the first time by our new CEO, Michael DeVito; and by our CFO, Chris Lown. Before we begin, we'd like to point out that during the call, Mr. DeVito and Mr. Lown may make forward-looking statements based on assumptions about the company's key business drivers and other factors. Changes in these factors could cause the company's actual results to materially vary from its expectations. A description of those factors can be found in the company's quarterly report on Form 10-Q filed today.

[Michael DeVito:]

Good morning and thank you for joining us. I'm pleased to participate in my first earnings call for Freddie Mac. Today, I will offer some early thoughts on priorities for the firm before handing it over to our CFO, Chris Lown who will walk through our financials and outline some of the vital relief we've provided during the pandemic. I've engaged with Freddie Mac for nearly three decades as a lender and a servicer. Over this time, I've developed great respect for the company. So, let me begin by stating that I believe strongly in the important role Freddie Mac plays in the housing market and its mission, a term I use expansively. For more than 50 years, Freddie Mac has supported this mission by providing liquidity stability and continuously seeking to advance affordability through our core operations. We have many opportunities to support affordable housing to further this mission. First, with a renewed focus on meeting our housing goals and reaching underserved markets. Additionally, through the financial contributions we make to two affordable housing funds. Importantly, I'm confident Freddie Mac can be a source of positive influence in addressing long-standing issues of fundamental fairness for people and communities of color at every income level. This mission and these opportunities are among the main reasons I joined the firm. Moving forward, we have several goals for our company. First, we are committed to ensuring Freddie Mac is a world-class risk manager. We have a solid foundation and talented employees to achieve this goal. With continued focus, we can demonstrate safety and soundness and continuously enhance how we evaluate risk all while broadly supporting the housing finance market through the economic cycle. In short, the better our risk management the more broadly we can serve our mission even in the face of a crisis. Second, we're focused on building capital and enhancing financial performance, which is the foundation that supports the risks we manage, promote safety and soundness, and serves as an important stepping stone to our company's long-term aspirations post conservatorship. As you're about to hear our retained earnings for this quarter have contributed meaningfully to this goal.

[Chris Lown:]

Good morning. I'm happy to report that Freddie Mac had another strong quarter. We earned net income of $3.7 billion and comprehensive income of $3.6 billion, increases of $1.9 billion and $1.7 billion respectively from the second quarter last year. These increases were driven by higher net revenues and a credit reserve release primarily in the single-family segment. Second quarter net revenues totaled $5.9 billion, an increase of 41% compared to $4.1 billion in the prior year quarter primarily driven by higher net interest income. Net interest income increased by 66% year-over-year to $4.8 billion. This increase was driven by higher single-family net interest income. Realized house price appreciation and improving economic conditions drove the reserve release in the quarter resulting in $0.2 billion of benefit on credit-related items compared to credit-related expense of $0.7 billion for the second quarter of 2020. Turning to our individual business segments. In the single-family segment, net income increased by $2.1 billion from the prior year quarter to $2.9 billion. This increase was driven by higher net interest income, primarily due to continued mortgage portfolio growth, higher average guarantee fee rates and higher deferred fee income recognition. In addition, credit-related items including the reserve release partly offset by a decrease of credit enhancement recoveries contributed to the increase in net income. New business activity of $288 billion increased on strong home purchase and refinance activity compared with $232 billion in the second quarter of 2020, but declined from $362 billion in the first quarter of 2021. The Single-Family serious delinquency rate of 1.86% continued its decline from the pandemic peak of 3.04% in the third quarter of 2020. And in the quarter, Single-Family loan workout activity helps approximately 88,000 families remain in their homes, including through completed forbearance agreements and 55,000 payment deferrals primarily related to the COVID-19 pandemic. Approximately, 1.67% of loans in the Single-Family mortgage portfolio based on loan count were on forbearance as of June 30, 2021.

[Michael DeVito:]

Thank you, Chris. As Chris suggested, the strong financial performance and the support of our mission, we described today are bound together. Our mission guides our work and provides opportunities to broadly serve the housing finance market and make it accessible for all. Our financial success enables us to advance our mission to provide liquidity, stability and affordability in a safe and sound manner. Thank you again for joining us and I look forward to speaking with you again next quarter.

[End of Q&A:]

This concludes today's program. Thank you for participating, and you may now disconnect.