Freddie Mac 4Q earnings double as low rates boost lending

Single-family guarantee portfolio rises to $2 trillion, the mortgage financier says

Freddie Mac, the second-largest mortgage financier in the U.S., said Thursday that its net income in the fourth quarter more than doubled from a year ago as low rates boosted originations.

Net income for the quarter was $2.6 billion, compared with $1.1 billion a year earlier. For the year, net income was $7.2 billion compared with $9.2 billion in 2018, in part reflecting a drop in mortgage lending in 2019’s first quarter after rates spiked an eight-year high at 2018’s end.

The company’s net worth at the end of 2019 increased to $9.1 billion from $4.5 billion a year earlier, boosted by a September agreement between Mark Calabria, director of the Federal Housing Finance Agency, and Steven Mnuchin, secretary of the Treasury, that allows Freddie Mac and Fannie Mae to retain their earnings and build capital as they prepare to leave conservatorship.

Due that agreement, Freddie withheld its fourth-quarter earnings from the Treasury.

“As a result of the increase in the Capital Reserve Amount pursuant to the September 2019 letter agreement, the company did not have a dividend requirement to Treasury on the senior preferred stock in December 2019, and it will not be required to pay a dividend on the senior preferred stock to Treasury until its net worth amount exceeds $20 billion,” Freddie said in the report.

Guaranteed fee income was $239 million, including single-family and multifamily, up from $208 million a year earlier. The average guarantee fee, known as a G-fee, was 45 basis points, up from 41 basis points in the prior year, Freddie Mac said. G-fees cover the credit risk and other costs that Freddie Mac incurs when it backs mortgages from lenders. The cost is typically passed on to borrowers.

Net interest income was $3.4 billion in the fourth quarter, compared with $2.7 billion a year earlier, Freddie Mac said.

Freddie’s portfolio of single-family guaranteed mortgages totaled $2 trillion in the fourth quarter, up 5.2% from the $1.9 trillion a year earlier. Its portfolio of multifamily guaranteed loans rose 14% to $271 billion from $237 billion.

The serious delinquency rate for guaranteed single-family mortgages, meaning loans with payments more than 90 days overdue, was 0.63%, compared with 0.69% a year earlier. The multifamily rate was 0.08%, up from a near-zero level of 0.01%.

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