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Freddie posts solid Q2 earnings


Freddie Mac recorded another stable and profitable quarter at the midway point of the year.

The government-sponsored enterprise (GSE) reported net income of $2.5 billion and comprehensive income of $2.4 billion in the April-through-June period and will pay a dividend of $1.6 billion to the U.S. Treasury in September. The earnings compared to the first quarter’s $2.9 billion net income and $2.2 billion comprehensive income.

fredearningsThe profits included a $264 million after-tax gain from litigation with Nomura Holding America, involving nonagency mortgage-related securities.

Freddie has been under tight government control while in conservatorship since the 2008 financial crisis, and almost all of its quarterly profits are transferred to the federal government. Freddie is allowed to maintain a $3 billion capital reserve, however. The anticipated $1.6 billion dividend represents the quarterly profit that is in excess of the amount needed to build its allowed reserve. 

The GSE bankrolled $103 billion in loans in the quarter, funding 362,000 single-family home-purchase or refinance loans, and providing liquidity for loans financing 191,000 multifamily units. Freddie said its single-family home-purchase loan volume was up 29 percent year over year, while refinancing volume was down 7 percent.

In a morning media call, Chief Executive Officer Donald Layton emphasized the company’s recent earnings stability, the credit quality of the loans in its guarantee book and low default rate, and its ongoing risk-transferring initiatives.

“Our guarantee book continues to grow, moving up 6 percent year over year to reach nearly $2.1 trillion, demonstrating how we are fully participating in mortgage market growth,” Layton said.

In an otherwise strong quarter for Freddie and the U.S. economy, Layton said he was concerned that fast-rising home prices “may be above a good equilibrium and sustainable level,” however. Layton said Freddie has attempted, where possible, to help ease the housing-supply issues, noting the GSE has been bankrolling multifamily loans with a rehabilitation component.

“We can only work the margins by the nature of our charter,” Layton said. “Still, a broader response is needed, and I look forward to the policymakers successfully addressing the issue, hopefully in the not-too-distant future.”


 

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