Freddie Mac, while reporting a profit for the full year in 2017, posted a more than $3 billion loss in the fourth quarter.
The GSE reported a net income of $5.6 billion for the full year, down from 2016’s net income of $7.8 billion.
But the fourth quarter’s net income posted a loss of $2.9 billion, and comprehensive income showed a loss of $3.3 billion.
This loss is due in part to the recently passed tax reform, which was expected to create a lower net income from the GSEs as a reduction in corporate tax rate would impact GSEs’ deferred tax assets.
Because of this possibility, Fannie Mae and Freddie Mac regained their capital reserves, each withholding $3 billion from the Department of the Treasury.
However, that $3 billion in reserve will not be enough to cover Freddie Mac’s loss of $3.3 billion, and certainly not enough to cover Fannie’s reported comprehensive loss of $6.5 billion. The GSEs will both need to draw from the Treasury to cover the deficit for the first time since 2012. Read more about that, here.
“Based on Freddie Mac's net worth deficit of $312 million at December 31, 2017, FHFA, as Conservator, will submit a draw request, on the company's behalf, to Treasury under the Purchase Agreement in the amount of $312 million,” the company stated in its earnings release.
Freddie Mac’s income before tax-related expenses came in at $3.8 billion, still significantly lower than the net income of $7.2 billion in the third quarter.
The company reported its guarantee portfolio grew 4% in 2017, reflecting increased competitiveness and efforts to improve the mortgage experience for lenders the company serves.
It also reported transferring a majority of credit risk on $280 billion in unpaid principal balance throughout the year, increasing its share of transferred risk from 26% of its guarantee portfolio in 2016 to 35% this year.
“2017 was a landmark year in Freddie Mac’s transformation, reaching several very significant milestones,” Freddie Mac CEO Donald Layton said. “The guarantee book topped $2 trillion for the first time after growing 6% last year, the highest rate in a decade.”
“Our work to innovate and reimagine the mortgage experience – and almost all business activities – has helped increase our competitiveness and made home possible for 2.3 million home-buying and renting families in 2017,” he said. “Notably, the number of first-time homebuyers we funded hit a 10-year high and we were once again the nation’s top multifamily financier.”