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Freddie Mac posts net income of $7.3 billion for 2020

Refi activity accounted for 70% of all funding in 2020, GSE says

Freddie Mac, the second-largest mortgage financier in the U.S., said Thursday that its net income in the fourth quarter rose 18% from the prior quarter to $2.9 billion as low rates continues to boost originations.

In total, the company’s net income at the end of 2020 was $7.3 billion, a 2% increase from 2019. Its net worth increased to $16.4 billion, from $9.1 billion at December 31, 2019.

“In 2020, Freddie Mac continued to serve the important role for which it was founded: supporting the housing market in all economic conditions,” said Chris Lown, Freddie Mac’s chief financial officer, in a Thursday earnings call. “In the face of extraordinary economic uncertainty caused by COVID-19, we provided record liquidity, enabling millions of borrowers to purchase or refinance homes at historically low interest rates.”

Year over year, the GSE recorded a net revenue increase of 18% to $16.7 billion – likely driven by an increase in net interest income of 8% to $12.8 billion.

Not surprisingly, Freddie Mac attributed its growth largely to a 17% jump in its single-family guarantee portfolio.

The GSE’s adjusted guarantee fee income increased from the prior year and prior quarter, as the total guarantee portfolio grew $373 billion, or 16%, from the previous year, driven by increases in both the single-family and multifamily guarantee portfolios.

Looking at its individual business lines, the single-Family business reported comprehensive income of $4.5 billion, up 4% year over year. But new single-family business activity overall skyrocketed 141% to $1.1 trillion as new homeowners flooded the market – making up 46% of its single-family purchases.

In the fourth quarter, Freddie Mac reported income of $2.9 billion, an 18% increase over the $2.5 billion in the third quarter of 2020. Net revenues of $5 billion were largely unchanged from the prior quarter.

The GSE also revealed how far it rode the refi wave in 2020, reporting that for the nearly 3.8 million single family homes it funded, 2.7 million were refinances. That’s 70% of mortgage activity.

According to Freddie Mac’s earnings report, credit-related expenses increased to $2.3 billion in 2020 from $200 million in the prior year, a direct result of the COVID-19 pandemic.

In January, The Federal Housing Finance Agency and the U.S. Department of the Treasury announced an agreement that would allow Fannie Mae and Freddie Mac to retain more of their earnings.

The new agreement allows for an aggregate of about $283 billion in GSE capital retention, a move the GSEs applauded and one Fannie Mae CEO Hugh Frater said was a significant milestone.

“In 2019, Freddie Mac began building capital to prepare the company for its exit from conservatorship,” Freddie Mac President Mike Hutchins said. “Since then, we’ve made good progress, going from approximately $3 billion in capital to $13.9 billion at the end of third quarter 2020. Today’s announcement will allow us to continue down the road to our next chapter, ensuring we can continue carrying out our mission in a safe and sound manner.”

Upon the capital reserve end date, the GSEs will resume quarterly dividend payments, the agreement said. The dividend amount at that time will be equal to the lesser of 10% of the liquidation preference of Treasury’s senior preferred stock, or the incremental increase in the GSE’s net worth in the prior quarter.

However, the next day, the FHFA said this money alone will not be enough to remove the mortgage giants from conservatorship.

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