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    Federal Home Loan Mortgage Corp (FMCC)

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    Business Description

    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.

    1. 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.
    2. 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.

    Q3 2024 Summary

    Initial Price$1.35July 1, 2024
    Final Price$1.13October 1, 2024
    Price Change$-0.22
    % Change-16.30%

    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.

    Key Metrics

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    Executive Team

    NamePositionStart DateShort Bio
    Michael J. DeVitoChief Executive OfficerJune 2021Michael J. DeVito has served as CEO since June 2021 and has over 30 years of experience in the mortgage and financial services industries. He announced his intention to retire effective March 15, 2024.
    Michael T. HutchinsPresidentDecember 2020Michael T. Hutchins has been President since December 2020, after serving as interim President. He joined Freddie Mac in 2013 and has held various senior roles, including EVP - Investments and Capital Markets.
    Christian M. LownExecutive Vice President & Chief Financial OfficerN/AChristian M. Lown is the EVP & CFO as of at least February 22, 2023, but specific start date details are not provided.
    Anil D. HindujaExecutive Vice President - Chief Risk OfficerJuly 2015Anil D. Hinduja has been the EVP and CRO since July 2015, responsible for the company's enterprise-wide risk framework. He previously held risk management roles at Barclays PLC and Citigroup.
    Heidi L. MasonExecutive Vice President & General CounselMarch 7, 2022Heidi L. Mason has been the EVP and General Counsel since March 7, 2022, overseeing legal strategies and corporate governance. She was previously a partner at ElevateNext Law and held senior roles at Wells Fargo.
    Ravi ShankarSenior Vice President - Single-Family Portfolio & ServicingNovember 2022Ravi Shankar rejoined Freddie Mac in November 2022 as SVP, overseeing portfolio management and servicing. He has held senior advisor roles at Boston Consulting Group and United Wholesale Mortgage, and previously worked at Freddie Mac, JP Morgan Chase, and Citigroup.
    John GlessnerSenior Vice President - Investments and Capital MarketsApril 2021John Glessner has been SVP since April 2021, managing liquidity, financing, securitization, and derivative activities. He re-joined Freddie Mac in 2010 after various trading positions at other firms.
    Sonu MittalSenior Vice President - Single-Family AcquisitionsMarch 2023Sonu Mittal has been SVP since March 2023, overseeing seller engagement, credit, products, and affordable mission goals. He has extensive experience in sales, operations, and capital markets from previous roles at Citizens Bank and Capital One.
    Frank NazzaroExecutive Vice President - Enterprise Operations & TechnologyApril 2021Frank Nazzaro has been EVP since April 2021, initially joining Freddie Mac in 2018 as SVP and CTO. He has over 20 years of experience in financial services technology.
    Kevin PalmerSenior Vice President - MultifamilyMay 2022Kevin Palmer has been SVP since May 2022, overseeing efforts to provide stability and affordability in the rental housing market. He joined Freddie Mac in 2001 and has held various roles in capital markets and risk management.
    Diana ReidChief Executive OfficerSeptember 10, 2024Diana Reid was appointed CEO on September 10, 2024, with over 40 years of experience in financial services, particularly in real estate lending and risk management. She previously led real estate business divisions at PNC Financial Services Group.
    James WhitlingerInterim Chief Financial OfficerJune 29, 2024James Whitlinger was appointed Interim CFO on June 29, 2024. He has been with Freddie Mac for 10 years and has over 30 years of experience in real estate finance, including roles at Univest Bank and Trust Co. and GMAC ResCap, Inc..

    Questions to Ask Management

    1. 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?

    2. 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?

    3. 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?

    4. 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?

    5. 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?