Freddie Mac Earnings Tumble

Freddie Mac on Thursday reported significantly lower earnings for the first quarter of the year as the impact of the coronavirus pandemic began to seep into the mortgage markets late last month.

The company’s first quarter net income of $200 million was down from $2.6 billion for the fourth quarter of 2019. Comprehensive income dropped from $2.4 billion in Q4 2019 to $0.6 billion in Q1 2020.

Freddie Mac attributed the decrease to:

  • Higher credit-related expense of $1.1 billion primarily driven by higher expected credit losses on loans as a result of the pandemic.
  • Losses on single-family loans held in inventory due to effects from the pandemic, combined with lower gains on single-family reperforming and nonperforming loan sales due to a lower volume of dispositions.
  • Higher market-related losses primarily driven by spread widening, resulting in higher multifamily spread-related fair value losses. 
  • Interest rate-related impacts on comprehensive income were minimal due to the company’s effective use of hedge accounting; and
  • Lower net amortization income driven by the timing differences in amortization related to prepayments between the debt of consolidated trusts and the underlying mortgage loans, as loan prepayments increased significantly in March 2020. 

Despite the decreases, Freddie CEO David Brickman said the company is holding up well during the pandemic.

“We have been working hard to ensure that borrowers and lenders are familiar with the forbearance options that are available to them, and we’re seeing the number of forbearance requests increase significantly in both the single-family and multifamily businesses; and we expect those numbers to continue to rise,” he said. “We are closely watching them and know that many are keenly interested in learning more about where those numbers stand, and we hope to have more to say about them in the near future.

“In spite of all this, I’m pleased to report that, so far, our book is generally performing well, and we are withstanding this crisis. We have acted quickly to provide direct relief to millions of homeowners and property owners and indirectly to renters hurt by the pandemic. We are also looking to support our lender partners by making it easier for them to close and sell us loans.”

Freddie Mac’s total equity/net worth increased to $9.5 billion at the end of the quarter, from $9.1 billion on December 31, 2019.

See the full report here.