Freddie Mac today reported net income of $7.7 billion for the full-year 2014, compared to $48.7 billion for the full-year 2013.
The company also reported comprehensive income of $9.4 billion for the full-year 2014, compared to $51.6 billion for the full-year 2013.
“2014 marked another year of solid financial and operating performance for Freddie Mac, enabling us to return an additional $20 billion to the nation’s taxpayers,” said Donald Layton, chief executive officer. “We made tremendous progress in materially reducing taxpayer exposure to risk, increasing market share between the GSEs through improved customer focus and service, and making our operations better through innovation and efficiency. At the same time, working with FHFA we helped to further strengthen the housing finance system in America.”
Freddie Mac’s 2014 net income and comprehensive income declined from 2013 by $41 billion and $42.2 billion, respectively. 2013 results included an income tax benefit of $23.3 billion that primarily resulted from the release of the deferred tax asset valuation allowance in the third quarter of 2013.
The decreases in 2014 net income and comprehensive income were further driven by:
- a shift from derivative gains of $2.6 billion in 2013 to derivative losses of $8.3 billion in 2014 primarily due to declining long-term interest rates in 2014;
- a shift from a benefit for credit losses of $2.5 billion in 2013 to a provision for credit losses of $0.1 billion in 2014 primarily due to lower home-price growth and smaller recoveries from representation and warranty settlements in 2014; and
- a decrease in net interest income of $2.2 billion primarily due to a continued decline in the company’s mortgage-related investments portfolio.
Fourth quarter 2014 net income and comprehensive income declined from the third quarter of 2014 by $1.9 billion and $2.5 billion, respectively. These decreases were primarily driven by:
- an increase in derivative losses of $2.8 billion due to declining long-term interest rates and flattening of the yield curve;
- a decrease in settlement income of $1.2 billion as there were no private-label securities litigation settlements in the fourth quarter of 2014;
- a decrease in total other comprehensive income of $0.7 billion mostly due to lower fair value gains on non-agency available-for-sale (AFS) securities; partially offset by
- a shift from income tax expense of $1.0 billion in the third quarter of 2014 to an income tax benefit of $0.1 billion in the fourth quarter of 2014.
During 2014, the company completed 120,000 single-family loan workouts, bringing the total number of homeowners the company has helped to avoid foreclosure to over one million since the beginning of 2009.
In 2014, the company provided $291.4 billion in liquidity to the market through its purchases of loans and issuances of mortgage-related securities, funding 1.2 million single-family homes and over 413,000 multifamily rental units. The company’s mortgage purchase volume reflected a higher percentage of home purchase loans in 2014, with refinance volume making up only 48% of single-family mortgage purchase volume as compared to 73% in 2013.
During 2014, the company announced the introduction of a new mortgage initiative with a down payment option as low as three percent to help qualified borrowers with limited savings buy a home.
The company also introduced a new multifamily offering to finance small rental properties that make up nearly one-third of the rental market.
Freddie Mac is also providing increased certainty to its customers through enhanced policies, including the representation and warranty framework and new technologies such as Quality Control Information Manager. Expanding access to mortgage credit continues to be a top priority for the company in 2015.
Since September 2008, Freddie Mac has been operating under conservatorship, with FHFA as Conservator. The support provided by Treasury pursuant to the Purchase Agreement enables the company to maintain access to the debt markets and have adequate liquidity to conduct its normal business operations. Based on Freddie Mac’s net worth of $2.7 billion at December 31, 2014, less the 2015 capital reserve amount of $1.8 billion, the company’s dividend obligation to Treasury in March 2015 will be $0.9 billion. Including the March 2015 dividend obligation,
Freddie Mac’s aggregate cash dividends paid to Treasury will total $91.8 billion, $20.5 billion more than cumulative cash draws of $71.3 billion received from Treasury through December 31, 2014. Under the Purchase Agreement, the payment of dividends does not reduce the outstanding liquidation preference. Accordingly, Treasury still maintains a liquidation preference of $72.3 billion on the company’s senior preferred stock as of December 31, 2014.
The Purchase Agreement does not allow the company to retain capital. Beginning in 2013, the required quarterly senior preferred stock dividend equals the amount, if any, by which the company’s net worth as of the end of the preceding quarter exceeds an applicable capital reserve amount. The applicable capital reserve amount was $2.4 billion for 2014, and is $1.8 billion for 2015. It will be reduced by $600 million each year thereafter until it reaches zero on January 1, 2018.
The amount of remaining funding available to Freddie Mac under the Purchase Agreement with Treasury is $140.5 billion, and will be reduced by any future draws.
Based on Freddie Mac’s net worth of $2.7 billion at December 31, 2014, less the $1.8 billion capital reserve, the company’s March 2015 dividend obligation to Treasury under the Purchase Agreement will be $0.9 billion, bringing total cumulative cash dividends paid to Treasury to $91.8 billion. The liquidation preference of the senior preferred stock held by Treasury remains $72.3 billion at December 31, 2014, as dividend payments do not offset prior Treasury draws.