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Freddie Mac (FMCC) is a government-sponsored enterprise that plays a crucial role in the U.S. housing market by providing liquidity, stability, and affordability. The company primarily engages in acquiring loans from lenders, securitizing these loans into mortgage-related securities, and managing associated risks. Freddie Mac sells mortgage-related securities and offers guarantees on these securities to investors, generating income through net interest, guarantee fees, and gains on loan sales.
- Single-Family Segment - Involves the purchase, securitization, and guarantee of single-family loans, managing mortgage credit risk and market risk, and includes treasury functions not allocated to other segments.
- Multifamily Segment - Focuses on the purchase, securitization, and guarantee of multifamily loans, managing associated credit and market risks, and offers a variety of loan products through its Optigo network, including conventional, targeted affordable housing, and small balance loans.
What went well
- Strong Financial Performance: Freddie Mac reported a net income of $3.1 billion for the third quarter of 2024, an increase of $420 million or 16% year-over-year ,. The company's net worth increased to $56 billion, representing a 26% increase year-over-year ,.
- Growth in Mortgage Portfolio: The total mortgage portfolio grew 2% year-over-year, ending the quarter at $3.5 trillion. The single-family mortgage portfolio increased 2% year-over-year to $3.1 trillion, while the multifamily mortgage portfolio increased 5% year-over-year to $452 billion ,.
- Commitment to Affordable Housing and Social Impact: Freddie Mac helped 415,000 families purchase, refinance, or rent a home in the quarter. 51% of the primary home purchases financed supported first-time homebuyers, and 51% of eligible purchase and refinance loans were affordable to low and moderate-income families. On the multifamily side, 94% of the eligible rental units financed were similarly affordable.
What went wrong
- Increase in Delinquency Rates: The single-family serious delinquency rate increased by 4 basis points this quarter to 54 basis points, up from 50 basis points last quarter. Similarly, the multifamily delinquency rate rose to 39 basis points, which is 1 basis point higher than last quarter and 15 basis points higher than the end of September 2023.
- Decreased Benefit for Credit Losses: The benefit for single-family credit losses decreased significantly to $99 million this quarter, compared to a benefit of $304 million in the prior year quarter, primarily due to smaller credit reserve releases.
- Flat Home Price Forecast: The company forecasts that home prices will remain flat over the next 12 months, which may indicate limited appreciation in their mortgage portfolio's collateral value.
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The multifamily delinquency rate has increased to 39 basis points, up 15 basis points from the end of September 2023, primarily due to delinquent floating rate loans ; what strategies are you implementing to address this rise in delinquencies, and how do you foresee it impacting your multifamily credit risk profile?
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The single-family serious delinquency rate rose to 54 basis points this quarter, an increase of 4 basis points from the previous quarter ; what are the underlying causes of this increase, and what measures are you taking to prevent further deterioration in loan performance?
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Your net income benefited significantly from credit reserve releases, including a $99 million benefit for single-family credit losses and a $92 million benefit for multifamily credit losses ; how confident are you that these reserve releases are prudent, especially given potential future economic uncertainties?
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You assume home prices will remain flat over the next 12 months and increase by 0.8% over the subsequent 12 months ; considering recent market volatility, how might deviations from this forecast affect your credit exposure and overall financial performance?
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With the upcoming implementation of minimum lease standards in multifamily properties beginning in February 2025 , what impact do you anticipate this will have on your lending practices and borrower relationships, particularly concerning compliance and operational costs?