Freddie Mac - Q4 2025

Transcript

Chris Spina (VP of Public Relations and Digital Communications)

Good morning, and thank you for joining us for a presentation of Freddie Mac's fourth quarter and full year 2025 financial results. I'm Chris Spina, Vice President of Public Relations and Digital Communications. We are joined today by Executive Vice President and Chief Financial Officer, Jim Whitlinger. Before we begin, we'd like to point out that during the call, Mr. Whitlinger 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 annual report on Form 10-K filed today. You will find the 10-K, earnings press release, and related materials posted on the Investor Relations section of freddiemac.com. This call is recorded, and a replay will soon be available on freddiemac.com.

We ask that the call not be rebroadcast or transcribed. With that, I'll turn the call over to Freddie Mac's CFO, Jim Whitlinger.

Jim Whitlinger (EVP)

Good morning, and thank you for joining our call to review Freddie Mac's fourth quarter and full year 2025 financial results. The company delivered a strong financial performance for the year, with net income of $10.7 billion and comprehensive income of $10.8 billion on net revenues of $23.3 billion. It was our third consecutive year of net income and comprehensive income above $10 billion, and revenue above $21 billion. Since we started adding earnings to our balance sheet six years ago, we've built up more than $70 billion in net worth. Our financial strength, supported by a focus on risk management and commitment to investing in technology, has enabled us to make home possible for a growing number of homebuyers and renters.

In 2025, we provided $465 billion of liquidity to support more than 1.7 million American families. That included close to 400,000 first-time homebuyers, representing more than 51% of the single-family primary residences we helped finance. This was the third straight year in which first-time homebuyers were more than half of all of our primary home purchases. In line with U.S. Federal Housing's goals, we maintained a focus on making home affordable as well as possible for American families. Approximately 53% of all single-family homes and 93% of Multifamily units we helped finance in 2025 were affordable to low- and moderate-income families, and we want to do even more. In Single-Family, we're using our technology to increase efficiency, reduce friction, and help lenders lower the cost of originating and servicing a home loan.

In fact, we've improved our automated underwriting tool with new products and features that have qualified more than 250,000 additional borrowers, originated loans that are $1,700 less costly on average, and saved $millions by avoiding performing loan repurchases. And more than ever, we're working to expand the availability of less expensive housing options by financing the purchase of manufactured housing and homes with accessory dwelling units, such as in-law suites. We're supporting supply in multifamily as well. We financed $4.2 billion in forward commitments, which gives borrowers and construction lenders certainty that Freddie Mac will purchase loans in the future with terms locked in today. We also expanded the program to include conventional loans. Multifamily invested $1.2 billion in LIHTC equity, which helped create and preserve affordable rental housing units nationwide.

Clearly, we've made a lot of progress in 2025. Now let's look at the financial results we've achieved along the way. Today, I'll cover three key areas: our full year and fourth quarter 2025 results, an overview of our single-family and multifamily segments performance, and an update on capital. As I mentioned this morning, we reported full year 2025 net income of $10.7 billion and comprehensive income of $10.8 billion, compared with $11.9 billion for each in 2024. We generated net revenues of $23.3 billion for full year 2025, compared with $23.9 billion in 2024. Net interest income for the full year 2025 was $21.4 billion, an 8% increase from the prior year.

This was driven primarily by continued growth in our mortgage portfolio, which increased 2% year-over-year, as well as lower funding costs. Non-interest income was $1.9 billion for full year 2025, down 55% year-over-year, primarily driven by a shift to net investment losses for full year 2025 from net investment gains for full year 2024. Reduced revenues from held-for-sale loan purchase and securitization activities and impacts from interest rate risk management in multifamily also played a role. The provision for credit losses was $1.3 billion for full year 2025, an increase of $814 million year-over-year.

This was primarily driven by a credit reserve build attributable to new acquisitions across both businesses, changes in forecasted and observed house prices in single family, and deteriorating credit performance on certain delinquent multifamily loans. The provision for credit losses for 2024 was primarily driven by a credit reserve build in single family attributable to new acquisitions. Our non-interest expenses were $8.6 billion, down $38 million year-over-year. We grew our total mortgage portfolio by 2% year-over-year to $3.7 trillion at year-end 2025, driven by 2% and 6% increases in our single-family and multifamily portfolios, respectively. Turning to our fourth quarter 2025 results, our net income was $2.8 billion, compared with $3.2 billion in 2024.

The year-over-year change was primarily due to lower net revenues of $565 million. While our net interest income increased year-over-year by 10%, it was offset by net investment losses of $283 million, versus a gain of $879 million in the prior year quarter. The net investment losses in the quarter were primarily driven by interest rate and spread changes in our single-family business and lower revenue from held-for-sale loan purchases, coupled with interest rate risk management activities in our multifamily business. Provision for credit losses was an expense of $52 million for the fourth quarter of 2025, down $40 million over the prior year quarter.

The provision for this quarter primarily reflected a reserve build in our multifamily business, partially offset by credit reserve release and single-family, which was mainly due to changes in estimated property market values and forecasted house prices. Turning to our individual business segments, Single-Family reported full year net income of $9.2 billion, compared with $9.4 billion in the prior year. The business reported full year 2025 net revenue of $19.9 billion, up $40 million from 2024. Full year 2025 net interest income was $19.8 billion, an increase of 7%, driven by higher core single-family guarantee income, fueled by continued growth in the single-family portfolio and lower funding costs. This increase in net interest income was partially offset by lower non-interest income due to investment losses driven by interest rate and spread-related changes.

Provision for Credit Losses increased to $758 million in 2025 from $374 million in 2024. This was primarily driven by credit reserve build related to new acquisitions, changes in estimated market values based on our internal house price index, and updated house price growth forecasts. In contrast, the 2024 provision was driven mainly by a reserve build associated with new acquisitions. House prices increased 0.7% in 2025, compared with a 4.2% increase in 2024. Our current forecast assumes house prices will grow by 0.5% over the next twelve months and 1.4% over the subsequent twelve months. Our December 2024 forecast assumed an increase of 2.7% in the next twelve months, followed by a 3.3% growth in the subsequent twelve months.

The single-family allowance for credit losses was $7.5 billion at year-end, compared with $6.7 billion at the end of 2024. This reflects a coverage ratio of 23 basis points at the end of 2025, compared with 21 basis points from the prior year. Net charge-offs for the year totaled $329 million, down $67 million from 2024. Our single-family portfolio credit characteristics remained strong, with a weighted average current loan-to-value ratio of 53% and a weighted average credit score of 754. The single-family serious delinquency rate was 59 basis points as of December 31, 2025, unchanged from the prior year. Freddie Mac was the leading player in the single-family market, with 54% of total GSE market share for the year.

Full year new business activity totaled $389 billion, an increase of 12% from 2024, as both refinance and purchase activity strengthened over the course of the year. In the fourth quarter of 2025, we had $118 billion of new business, driven by strength in refinance activity, which accounted for 35% of total volume, the highest quarterly refinance share we have seen in the past three years. Mortgage rates declined steadily throughout 2025, with the average 30-year fixed rate ending the year at 6.15%. This represents the lowest level observed during the year and a notable decline from the peak of 7.04% observed in the first quarter.

The credit characteristics of our new business remained strong, with an average estimated loan-to-value ratio of 77% and a weighted average credit score of 757. During the year, we helped approximately 94,000 families remain in their homes through loan workouts. At the end of the year, 61% of our single-family portfolio had some form of credit enhancement. Before going into our multifamily results, I want to highlight an important change in our multifamily business strategy. Historically, we primarily use senior subordinate securitization structures in our multifamily business. We have now shifted to focusing predominantly on fully guaranteed securitizations. Under this approach, multifamily initially retains the credit risk on the underlying loans and subsequently transfers that risk through Multifamily Credit Insurance Pool and Multifamily Structured Credit Risk note transactions.

This strategic shift is expected to reduce market and fair value-driven earnings volatility while generating a more stable and higher stream of guaranteed net interest income over time. Moving to the results. The multifamily business reported 2025 full year net income of $1.5 billion versus $2.5 billion in the prior year. The year-over-year change was primarily driven by lower net revenues and a higher provision for credit losses in 2025. Full year net revenues totaled $3.4 billion, compared with $4.1 billion in 2024, driven largely by lower non-interest income. Net interest income increased 33%, reflecting higher guarantee fee income consistent with the business strategy shift toward fully guaranteed securitizations.

This increase in net interest income was offset by a $1.1 billion decline in non-interest income, primarily due to lower revenues from held-for-sale loan purchases and securitization activities following the strategic business shift, along with impacts from interest rate risk management activities. The provision for credit losses for 2025 was an expense of $532 million, compared with $102 million in 2024. Provision for credit losses this year was driven by a credit reserve build attributable to new loan purchase commitment and acquisition activities, due to the change in the multifamily business strategy and deterioration in the credit performance of certain delinquent loans. The multifamily allowance for credit losses was $956 million at year-end, compared with $548 million in 2024.

This reflects a coverage ratio of 46 basis points, unchanged from 2024. Net charge-offs totaled $124 million in 2025. We were also the leading agency financier in the multifamily market in 2025, capturing 51% of the GSE new business market. Total multifamily new business activity reached $76 billion, an increase of 17% from the prior year, driven by strong demand for multifamily financing and the execution of our competitive strategies. Approximately 66% of this activity in 2025, based on unpaid principal balance, was mission-driven affordable housing, exceeding FHFA's minimum requirement of 50%. Of the $76 billion, $73 billion was counted towards the FHFA cap. In 2025, we securitized $67 billion of loans, $12 billion higher than in the prior year.

The average guarantee fee rate on our new total guarantee exposures increased to 56 basis points for the year, up 5 basis points from the prior year, primarily due to continued growth in our fully guaranteed securitization issuances, for which we charge higher guarantee fee rates. Our multifamily mortgage portfolio at the end of 2025 was $496 billion, an increase of 6% year-over-year. The multifamily delinquency rate at the end of the year was 44 basis points, compared with 40 basis points at the end of 2024. 97% of the delinquent loans in the multifamily mortgage portfolio had credit enhancement, reducing our credit exposure. At year-end, 89% of the multifamily mortgage portfolio was covered by credit enhancements.

Our net worth increased to $70.4 billion at the end of the year, representing an 18% increase from 2024. The total capital required under our regulatory capital rule at the end of the year was $158 billion, which constituted $59 billion of buffers. The capital shortfall to regulatory capital, excluding buffers, was $106 billion, because the $73 billion of senior preferred stock does not qualify as regulatory capital. In conclusion, 2025 was a good year for Freddie Mac. We delivered strong financial results. We managed our risk well and further strengthened our risk focus. We continued to invest in the professional growth and development of our management, talent, and staff. Guided by the leadership of U.S. Federal Housing, we improved operational efficiency and reduced unnecessary costs, both operationally and throughout the loan cycle.

This allowed us to better serve American families and made it easier to do business with us. We have met or exceeded the expectations of our existing customers and earned many new ones in the process. We achieved these accomplishments through the success of our business lines, investments in technology, and improvements in the company's operations. Expect us to remain on this path, driving toward further improvements throughout 2026. Thank you for joining us today.