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Politics & MoneyMortgage

Freddie Mac posts $3.7B in net income for Q2 2021

Refinances made up 66% of the loans the GSE acquired

Freddie Mac reported $3.7 billion in net income in the second quarter of 2021, exceeding each of the previous four quarters.

The government sponsored entity said the increase was due to higher net revenues and a credit reserve release. Its net revenues increased $1.7 billion year-over-year to $5.9 billion, due to continued growth and strong performance in its single-family mortgage portfolio, company officials said. 

Refinances, including cash-out refinances, still accounted for most of the GSE’s funding activities. Refinances made up 66% of the loans the GSE acquired, compared with 75% in the first quarter of 2020, and 70% in 2020 overall.

Net revenues in the regulated entity’s single-family segment increased by $866 million from the first quarter of 2021, reaching $4.7 billion, a more than $2 billion increase from the second quarter of 2020.

Net income for the single-family segment increased from $1.7 billion in the first quarter of 2021 to $2.8 billion. Freddie Mac said continued mortgage portfolio growth, higher average guarantee fee rates, and higher deferred fee income recognition accounted for the increase. The single-family portfolio grew $503 billion from the same time last year.

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Freddie Mac charged an average guarantee fee of 49 basis points to lenders for new acquisitions in the second quarter. It pays 10 of those basis points to the Treasury, an arrangement which arose to pay for payroll tax cut legislation passed in 2011. That increase will expire this year, although there has been talk of reviving a guarantee fee increase to pay for a bipartisan infrastructure deal.

Freddie Mac’s single-family operating expenses held relatively steady, at $1.2 billion.

The share of serious delinquencies in Freddie Mac’s portfolio has continued to decline, as more loans leave forbearance agreements. Only 1.86% of loans were seriously delinquent in the second quarter, down from 2.34% at the end of the first quarter of 2021 and 2.48% a year ago. 1.67% of single-family mortgages are still in forbearance.

In his first earnings call with Freddie Mac, CEO Michael DeVito said he “believed strongly in the important role Freddie Mac plays in the housing market.” He also emphasized the government sponsored entity’s mission to further housing affordability.

“I’m confident Freddie Mac can be a source of positive influence in addressing longstanding issues of fundamental fairness for people and communities of color at every income level,” DeVito said.

DeVito’s statements echo those made by Sandra Thompson, acting director of the Federal Housing Finance Agency, which regulates Freddie Mac. In her first statement after assuming the top job at the FHFA, Thompson showed that she was aligned with the Biden administration’s agenda to further racial equity.

“There is a widespread lack of affordable housing and access to credit, especially in communities of color,” Thompson said. “It is FHFA’s duty through our regulated entities to ensure that all Americans have equal access to safe, decent, and affordable housing.”

Measures are still in place to give Freddie Mac borrowers flexibility as the economy recovers from the effects of the COVID-19 pandemic, despite growing concerns over the spread of the Delta variant.

A week before the foreclosure ban was set to expire, the FHFA extended the moratorium until the end of July. The Biden administration said that extension would be the final one, and last week announced a suite of expanded tools to help borrowers lower their monthly mortgage payments and avoid foreclosure. 

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