FMCC 8-K
Federal Home Loan Mortgage Corp (FMCC)
8-K
2020-04-30
For: 2020-04-30
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April 05, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 30, 2020
(Exact name of registrant as specified in its charter)
Freddie Mac
Federally chartered corporation | ||||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
Virginia | ||||||
(Address of principal executive offices) | (Zip Code) | |||||
Registrant’s telephone number, including area code: (703 ) 903-2000
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On April 30, 2020, Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation) announced its results of operations for the quarter ended March 31, 2020. A copy of the related press release for the quarter ended March 31, 2020 is being filed as Exhibit 99.1 to this report and is incorporated herein by reference. In addition, a copy of the First Quarter 2020 Financial Results Supplement is being furnished as Exhibit 99.2 to this report and is incorporated herein by reference.
Exhibit 99.1 submitted herewith shall be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934.
Exhibit 99.2 submitted herewith shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of Section 18, nor shall it be deemed to be incorporated by reference into any disclosure document relating to Freddie Mac, except to the extent, if any, expressly set forth by specific reference in such document.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The exhibits listed in the Exhibit Index below are being filed or furnished as part of this Current Report on Form 8-K:
Exhibit Number | Description of Exhibit | |
99.1 | ||
99.2 | ||
104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the inline XBRL document | |
__________________________________________________________________________________________________________
Freddie Mac Form 8-K
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
FEDERAL HOME LOAN MORTGAGE CORPORATION | ||
By: | /s/ | Donald F. Kish |
Donald F. Kish | ||
Senior Vice President — Corporate Controller, Principal Accounting Officer & Interim Chief Financial Officer | ||
Date: April 30, 2020
__________________________________________________________________________________________________________
Freddie Mac Form 8-K
 |  | |
Exhibit 99.1
Freddie Mac Reports Net Income of $0.2 Billion and
Comprehensive Income of $0.6 Billion for First Quarter 2020
The Company Takes Extraordinary Steps to Support the Market During the Pandemic
“Freddie Mac’s first quarter was marked by unprecedented challenges to our country, our business and our markets - and I am very proud of how we have responded. We are offering relief to millions of homeowners and renters, supporting our customers in new and vital ways, and serving as a stabilizing force for the housing finance system. Through these efforts, we are continuing to fully serve our mission.” |
David M. Brickman Chief Executive Officer |
First Quarter 2020 Financial Results(1)
• | Comprehensive income of $0.6 billion, down $1.8 billion from the prior quarter, driven by: |
▪ | Higher credit-related expense of $1.1 billion, or $0.9 billion, after-tax, primarily due to higher expected credit losses as a result of the COVID-19 pandemic; |
▪ | Lower gains on single-family asset disposition activity of $0.6 billion, or $0.5 billion, after-tax; and |
▪ | Higher market-related losses of $0.3 billion, after-tax, primarily driven by spread widening due to the pandemic. |
• | Total equity/net worth(2) increased to $9.5 billion at March 31, 2020, from $9.1 billion at December 31, 2019. |
COVID-19 Pandemic Response Efforts(1)
• | Actions To Support Homeowners and Renters — In March 2020, working with the Federal Housing Finance Agency (FHFA), the company took steps to provide relief to homeowners, renters, and multifamily property owners with Freddie Mac-backed loans, including mortgage forbearance and eviction protection. |
• | Actions To Support Lenders — Also working with FHFA, the company introduced temporary measures to provide sellers with clarity and flexibility to help them continue to support borrowers. |
Open for Business
• | Freddie Mac demonstrated its business resiliency and importance to the housing markets by continuing to serve its critical mission during the pandemic. |
▪ | New business activity was $138 billion for Single-Family and $10 billion for Multifamily in the first quarter of 2020. The Single-Family and Multifamily guarantee portfolios grew 6% and 13%, respectively, year over year. |
▪ | Credit enhancement coverage of the Single-Family credit guarantee portfolio increased to 58% in the first quarter of 2020 from 56% in the prior quarter; credit enhancement coverage of the Multifamily mortgage portfolio remained at 89%. |
• | As of March 31, 2020, the company maintained sufficient liquidity to meet its contractual obligations and continued to actively access the debt markets. |
• | The company has not experienced any significant operational or technological issues associated with its pandemic response efforts despite more than 95% of its workforce working remotely. |
• | In addition, the company continued to engage with its customers and third parties to ensure continuity of critical business activities. |
(1) See the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, for additional information on its response efforts related to the COVID-19 pandemic and its outlook for 2020.
(2) See page 12 for additional information about the company's net worth and the September 2019 Letter Agreement.
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 2
McLean, VA — Freddie Mac (OTCQB: FMCC) today reported net income of $0.2 billion for the first quarter of 2020, compared to net income of $2.6 billion for the fourth quarter of 2019. The company also reported comprehensive income of $0.6 billion for the first quarter of 2020, compared to comprehensive income of $2.4 billion for the fourth quarter of 2019.
• | Comprehensive income decreased $1.8 billion from the prior quarter, mainly due to: |
▪ | Higher credit-related expense of $1.1 billion primarily driven by higher expected credit losses on loans as a result of the pandemic, partially offset by the related expected recoveries from credit enhancements, such as STACR and ACIS, on the corresponding loans; |
▪ | 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, partially offset by higher fair value gains on certain Single-Family credit risk transfer (CRT) transactions, both due to the effects of the pandemic; |
◦ | Although certain interest rates, such as the 10-year Treasury, reached all-time lows during the quarter, 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. |
Summary of Consolidated Statements of Comprehensive Income (Loss)
(Dollars in millions) | 1Q 2020 | 4Q 2019 | Change | 1Q 2019 | Change | |||||||
Net interest income | $2,785 | $3,358 | $(573) | $3,153 | $(368) | |||||||
Guarantee fee income | 377 | 239 | 138 | 290 | 87 | |||||||
Investment gains (losses), net | (835) | 901 | (1,736) | (513 | ) | (322) | ||||||
Other income (loss) | 95 | 75 | 20 | (17 | ) | 112 | ||||||
Net revenues | 2,422 | 4,573 | (2,151) | 2,913 | (491) | |||||||
Benefit (provision) for credit losses | (1,233) | 272 | (1,505) | 135 | (1,368) | |||||||
Credit enhancement (expense) benefit, net | 236 | (214 | ) | 450 | (158 | ) | 394 | |||||
Real estate owned (REO) operations expense | (85) | (57 | ) | (28) | (33 | ) | (52) | |||||
Credit-related expense | (1,082) | 1 | (1,083) | (56 | ) | (1,026) | ||||||
Administrative expense | (587) | (747 | ) | 160 | (578 | ) | (9) | |||||
Temporary Payroll Tax Cut Continuation Act of 2011 expense | (432) | (420 | ) | (12) | (390 | ) | (42) | |||||
Other expense | (103) | (157 | ) | 54 | (124 | ) | 21 | |||||
Operating expense | (1,122) | (1,324 | ) | 202 | (1,092 | ) | (30) | |||||
Income (loss) before income tax (expense) benefit | 218 | 3,250 | (3,032) | 1,765 | (1,547) | |||||||
Income tax (expense) benefit | (45) | (658 | ) | 613 | (358 | ) | 313 | |||||
Net income (loss) | 173 | 2,592 | (2,419) | 1,407 | (1,234) | |||||||
Total other comprehensive income (loss), net of taxes and reclassification adjustments | 449 | (144 | ) | 593 | 258 | 191 | ||||||
Comprehensive income (loss) | $622 | $2,448 | $(1,826) | $1,665 | $(1,043) | |||||||
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 3
Selected Financial Measures
Net Interest Income and Net Interest Yield
(Dollars in billions)
• | Net interest income and net interest yield decreased from the prior quarter, primarily driven by a less favorable hedge accounting mismatch and lower amortization income due to the timing difference in amortization related to prepayments between the debt of consolidated trusts and the underlying mortgage loans, partially offset by increased contractual net interest income from the Single-Family guarantee portfolio. |
Guarantee Fee Income(1) and
Multifamily Guarantee Portfolio
(1) Guarantee fee income on a GAAP basis is primarily from the company’s multifamily business.
• | The company’s guarantee business remained strong in the first quarter of 2020 as evidenced by continued high contractual guarantee fee income. Improvements in the fair value of multifamily guarantee assets due to declines in interest rates resulted in an increase in guarantee fee income in the quarter. |
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 4
Credit-Related Expense(1)(2)
(Dollars in billions)
(1) Excludes interest expense related to single-family CRT debt included in GAAP net interest income.
(2) The company adopted the Current Expected Credit Losses (CECL) impairment model on January 1, 2020. See the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, for additional information.
• | Credit-related expense increased from the prior quarter, primarily due to: |
▪ | A shift from a benefit for credit losses to a provision to incorporate the forecasts of higher expected credit losses on loans as a result of the pandemic; partially offset by |
▪ | A shift from a credit enhancement expense to a benefit due to an increase in expected recoveries from certain credit enhancements, such as STACR and ACIS transactions, as a result of the corresponding increase in expected credit losses on the covered loans. |
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 5
Non-GAAP Financial Measure Highlights
In addition to analyzing the company’s results on a GAAP basis, management reviews net interest income and guarantee fee income on an “adjusted,” or non-GAAP, basis. These adjusted financial measures are calculated by reclassifying certain credit guarantee-related activities and investment-related activities between various line items on the company’s GAAP consolidated statements of comprehensive income. The company also presents one additional non-GAAP financial measure, adjusted net interest yield, that is calculated based on adjusted net interest income. Management believes that this non-GAAP financial measure is useful because it more clearly reflects the company’s sources of revenue and return.
For additional information about the company's non-GAAP financial measures and reconciliations to the comparable amounts under GAAP, see pages 16 - 17 of this press release.
Adjusted Net Interest Income(1), Adjusted Net Interest Yield(1), and
Investments Portfolio
(Dollars in billions)
(1) | Non-GAAP financial measure. For reconciliations to the comparable amounts under GAAP, see page 16 of this press release. |
Amounts may not add due to rounding.
• | Adjusted net interest income and adjusted net interest yield increased slightly from the prior quarter, primarily driven by lower funding costs due to the decline in interest rates as a result of the pandemic, partially offset by a higher proportion of the lower yielding other investments portfolio. |
• | The mortgage-related investments portfolio was $211 billion, down more than $1 billion, or 1%, from the prior quarter and $8 billion, or 4%, from the prior year. In February 2019, FHFA directed the company to maintain the mortgage-related investments portfolio at or below $225 billion at all times. |
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 6
Adjusted Guarantee Fee Income(1) and
Total Guarantee Portfolio
(Dollars in billions)
(1) | Non-GAAP financial measure. For reconciliations to the comparable amounts under GAAP, see page 16 of this press release. |
Amounts may not add due to rounding.
• | Adjusted guarantee fee income remained strong, increasing slightly from the prior quarter. Increases in Multifamily guarantee fee income and Single-Family contractual guarantee fee income were partially offset by lower Single-Family upfront fee amortization income due to lower loan prepayments compared to the prior quarter. |
• | The total guarantee portfolio grew $30 billion, or 1%, from the prior quarter and $138 billion, or 6%, from the prior year, driven by increases in both the Single-Family and Multifamily guarantee portfolios. |
Return on Conservatorship Capital (ROCC)
The table below provides the ROCC, calculated as (1) annualized comprehensive income for the period divided by (2) average conservatorship capital during the period.
ROCC is not based on the company's total equity and does not reflect actual returns on total equity. The company does not believe that returns on total equity are meaningful because of the net worth limit imposed since 2012 under the Purchase Agreement. In addition, the company believes that returns post-conservatorship would most likely be lower than the levels calculated below, assuming the same portfolio of risk assets, as it expects that it would hold capital above the minimum required regulatory capital levels and that it would likely be required to pay fees for federal government support, thereby reducing its total comprehensive income.
The Conservatorship Capital Framework (CCF) has been and may be further revised by FHFA from time to time, including in connection with FHFA’s consideration and adoption of a final Enterprise Capital Rule, which could possibly result in material changes in the company's conservatorship capital and, thus, its returns on conservatorship capital. FHFA has announced that it plans to re-propose the Enterprise Capital Rule in 2020.
Return on Conservatorship Capital
(Dollars in billions) | 1Q 2020 | 4Q 2019 | Change | 1Q 2019 | Change | ||||||||||
Comprehensive income | $0.6 | $2.4 | $(1.8) | $1.7 | $(1.1) | ||||||||||
Conservatorship capital (average during the period)(1)(2) | $50.5 | $51.5 | $(1.0) | $52.4 | $(1.9) | ||||||||||
ROCC, based on comprehensive income | 4.9 | % | 19.0 | % | (14.1 | )% | 12.7 | % | (7.8 | )% | |||||
(1) Average conservatorship capital and ROCC for 1Q 2020 are preliminary and subject to change until official submission to FHFA.
(2) Average conservatorship capital for each period is based on the CCF in effect during that period. The CCF in effect as of March 31, 2020 was largely unchanged from the CCF as of December 31, 2019.
Amounts may not add due to rounding.
ROCC decreased compared to the prior quarter, primarily driven by the decrease in comprehensive income in the first quarter of 2020.
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 7
For additional information on the CCF and ROCC, see the company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Segment Financial Results and Business Highlights
Freddie Mac’s operations consist of three reportable segments, which are based on the types of business activities they perform – Single-Family Guarantee, Multifamily, and Capital Markets. The company presents Segment Earnings for each reportable segment by reclassifying certain credit guarantee-related activities and investment-related activities between various line items on its GAAP consolidated statements of comprehensive income and allocating certain revenues and expenses, including funding costs and administrative expenses, to its three reportable segments.
For more information about Segment Earnings, see Note 13 to the financial statements included in the company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Single-Family Guarantee Segment
Providing liquidity to the market while transforming U.S. housing finance
Financial Results(1)
(Dollars in millions) | 1Q 2020 | 4Q 2019 | Change | 1Q 2019 | Change | |||||
Guarantee fee income | $2,093 | $2,199 | $(106) | $1,635 | $458 | |||||
Investment gains (losses), net | 437 | 325 | 112 | 6 | 431 | |||||
Other income (loss) | 15 | 167 | (152) | 112 | (97) | |||||
Net revenues | 2,545 | 2,691 | (146) | 1,753 | 792 | |||||
Benefit (provision) for credit losses | (1,222) | 177 | (1,399) | 71 | (1,293) | |||||
Credit enhancement (expense) benefit, net | 28 | (393) | 421 | (316) | 344 | |||||
REO operations expense | (87) | (60) | (27) | (38) | (49) | |||||
Credit-related expense | (1,281) | (276) | (1,005) | (283) | (998) | |||||
Administrative expense | (372) | (474) | 102 | (374) | 2 | |||||
Other expense | (151) | (161) | 10 | (168) | 17 | |||||
Operating expense | (523) | (635) | 112 | (542) | 19 | |||||
Segment Earnings (Losses) before income tax (expense) benefit | 741 | 1,780 | (1,039) | 928 | (187) | |||||
Income tax (expense) benefit | (153) | (360) | 207 | (188) | 35 | |||||
Segment Earnings (Losses), net of taxes | 588 | 1,420 | (832) | 740 | (152) | |||||
Total other comprehensive income (loss), net of tax | (2) | (13) | 11 | (4) | 2 | |||||
Total comprehensive income (loss) | $586 | $1,407 | $(821) | $736 | $(150) | |||||
(1) | The financial performance of the company’s Single-Family Guarantee segment is measured based on its contribution to GAAP net income (loss). |
Key Drivers
Comprehensive income decreased from the prior quarter, primarily due to:
• | Higher credit-related expense primarily driven by higher expected credit losses on loans as a result of the pandemic, partially offset by the related expected recoveries from credit enhancements, such as STACR and ACIS, on the corresponding covered loans; |
• | Lower guarantee fee income due to a decline in upfront fee amortization resulting from lower loan prepayments in the current quarter as compared to the prior quarter; and |
• | Higher investment gains due to higher fair value gains on certain CRT transactions resulting from significant spread widening in the first quarter, partially offset by valuation losses on single-family loans held in inventory, both driven by the impact of the pandemic. Gains were lower on reperforming and nonperforming loan sales due to a lower volume of dispositions. |
Business Highlights
• | New business activity was $138 billion, a decrease of $9 billion, or 6%, from the prior quarter, primarily resulting from a decrease in purchase volume. |
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 8
▪ | The weighted average original loan-to-value (LTV) ratio of new business activity was 74% for the first quarter of 2020, down from 75% for the prior quarter, while the weighted average original credit score was 752, unchanged from the prior quarter. |
▪ | The average guarantee fee rate charged on new acquisitions was 49 basis points, up from 48 basis points for the prior quarter. |
▪ | First-time homebuyers represented 47% of new single-family purchase loans in the first quarter of 2020. |
▪ | The company provided funding for 526,000 single-family homes, nearly 309,000 of which were refinance loans. |
• | The Single-Family credit guarantee portfolio increased 6% from March 31, 2019, to $2,020 billion at March 31, 2020, driven by an increase in U.S. single-family mortgage debt outstanding as a result of home price appreciation. |
▪ | The average guarantee fee rate on the Single-Family credit guarantee portfolio was 42 basis points, down from 45 basis points for the prior quarter. |
◦ | The rate decreased in the first quarter of 2020 due to the decreased amortization of single-family upfront fees, net of hedging, driven by a lower prepayment rate, partially offset by an increase in contractual guarantee fees as older vintages were replaced by acquisitions of new loans with higher contractual guarantee fees. |
• | The Single-Family serious delinquency rate declined to 0.60%, from 0.63% at the end of the prior year. |
• | The company reduces the amount of conservatorship capital needed for credit risk by shifting the risk of credit losses from Freddie Mac to third-party investors through its CRT transactions, primarily STACR and ACIS transactions. |
▪ | As of March 31, 2020, 51% of the Single-Family credit guarantee portfolio was covered by certain CRT transactions (including STACR, ACIS, certain senior subordination securitization structures, and certain lender risk-sharing transactions), and conservatorship capital needed for credit risk on this population was reduced by approximately 75% through these CRT transactions based on prescribed CCF guidelines. |
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 9
Multifamily Segment
Leading through innovation
Financial Results(1)
(Dollars in millions) | 1Q 2020 | 4Q 2019 | Change | 1Q 2019 | Change | ||||||
Net interest income | $269 | $264 | $5 | $247 | $22 | ||||||
Guarantee fee income | 413 | 227 | 186 | 287 | 126 | ||||||
Investment gains (losses), net | (851) | 317 | (1,168) | (26 | ) | (825) | |||||
Other income (loss) | 37 | 22 | 15 | 29 | 8 | ||||||
Net revenues | (132) | 830 | (962) | 537 | (669) | ||||||
Credit-related expense | (43) | (2) | (41) | (5 | ) | (38) | |||||
Administrative expense | (120) | (146) | 26 | (112 | ) | (8) | |||||
Other expense | (5) | (14) | 9 | (6 | ) | 1 | |||||
Operating expense | (125) | (160) | 35 | (118 | ) | (7) | |||||
Segment Earnings (Losses) before income tax (expense) benefit | (300) | 668 | (968) | 414 | (714) | ||||||
Income tax (expense) benefit | 62 | (135) | 197 | (84 | ) | 146 | |||||
Segment Earnings (Losses), net of taxes | (238) | 533 | (771) | 330 | (568) | ||||||
Total other comprehensive income (loss), net of tax | 64 | (31) | 95 | 65 | (1) | ||||||
Total comprehensive income (loss) | $(174) | $502 | $(676) | $395 | $(569) | ||||||
(1) | The financial performance of the company’s Multifamily segment is measured based on its contribution to GAAP comprehensive income (loss). |
Key Drivers
Comprehensive income decreased from the prior quarter, primarily due to:
• | Investment losses (net of other comprehensive income), primarily driven by increased spread-related fair value losses due to spread widening in the first quarter of 2020, combined with losses on derivatives used to economically hedge index lock commitments due to interest rate declines as a result of the market volatility caused by the pandemic; |
▪ | Economic hedging losses will be mostly offset in the second quarter of 2020 as the index locks become loan purchase commitments that are measured at fair value; and |
• | Higher guarantee fee income, driven by improvements in the fair value of guarantee assets due to declines in interest rates. |
Business Highlights
• | New business activity was $10.0 billion, a 44% decrease from the prior quarter, as funding activity is typically higher at year-end. |
▪ | In September 2019, FHFA announced a revised loan purchase cap structure for the multifamily business. The loan purchase cap is $100.0 billion for the five-quarter period from the fourth quarter of 2019 through the fourth quarter of 2020 and at least 37.5% of the new multifamily business must be mission-driven, affordable housing over the same five-quarter period. |
◦ | As of March 31, 2020, the total cumulative new business activity subject to the cap was $27.4 billion. Approximately 39% of this activity was mission-driven, affordable housing. |
▪ | The weighted average original LTV ratio of new business activity was 69% for the first quarter of 2020, substantially unchanged from the prior quarter. |
▪ | The company provided financing for more than 111,000 rental units. |
▪ | 96% of the eligible multifamily rental units financed in the first quarter of 2020 were affordable to families earning at or below 120% of area median incomes. |
• | The Multifamily guarantee portfolio increased to $275 billion, driven by new securitization activity. |
• | The Multifamily delinquency rate remained low at 0.08%. |
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 10
• | As of March 31, 2020, the company had cumulatively transferred the large majority of expected and stress credit risk on the Multifamily guarantee portfolio, primarily through subordination in its securitizations. |
▪ | In addition, nearly all of the company's securitization activities shifted substantially all the interest-rate and liquidity risk associated with the underlying collateral away from Freddie Mac to third-party investors. |
Capital Markets Segment
Innovating the distribution of loans and securities into the mortgage market and actively reducing risk for taxpayers
Financial Results(1)
(Dollars in millions) | 1Q 2020 | 4Q 2019 | Change | 1Q 2019 | Change | |||||
Net interest income | $509 | $484 | $25 | $758 | $(249) | |||||
Investment gains (losses), net | (427) | 552 | (979) | (36) | (391) | |||||
Other income (loss) | (201) | (62) | (139) | (206) | 5 | |||||
Net revenues | (119) | 974 | (1,093) | 516 | (635) | |||||
Administrative expense | (95) | (127) | 32 | (92) | (3) | |||||
Other expense | (9) | (45) | 36 | (1) | (8) | |||||
Operating expense | (104) | (172) | 68 | (93) | (11) | |||||
Segment Earnings (Losses) before income tax (expense) benefit | (223) | 802 | (1,025) | 423 | (646) | |||||
Income tax (expense) benefit | 46 | (163) | 209 | (86) | 132 | |||||
Segment Earnings (Losses), net of taxes | (177) | 639 | (816) | 337 | (514) | |||||
Total other comprehensive income (loss), net of tax | 387 | (100) | 487 | 197 | 190 | |||||
Total comprehensive income (loss) | $210 | $539 | $(329) | $534 | $(324) | |||||
(1) | The financial performance of the company’s Capital Markets segment is measured based on its contribution to GAAP comprehensive income (loss). |
Key Drivers
• | Comprehensive income decreased from the prior quarter, primarily due to: |
▪ | Higher fair value losses on investments (some of which are recorded in other comprehensive income) due to spread widening, partially offset by fair value gains due to lower interest rates, combined with losses from derivatives due to lower interest rates, most of which were deferred due to the company’s effective use of hedge accounting. Spread changes and lower interest rates were both driven by significant market volatility caused by the pandemic; |
▪ | Lower gains on reperforming loan sales due to a lower volume of dispositions; and |
▪ | Higher amortization expense in other income (loss) due to the timing difference in amortization related to prepayments between the debt of consolidated trusts and the underlying mortgage loans; partially offset by |
▪ | Increased net interest income driven by lower amortization expense due to a decrease in loan prepayments. |
Business Highlights
• | Freddie Mac continued to maintain a presence in the agency mortgage-related securities market to strategically support the guarantee business. |
• | While the company continued to actively reduce its holdings of less liquid assets during the first quarter of 2020, the effect of the pandemic on market conditions negatively affected the overall liquidity of the company's portfolios. In addition, although FHFA has instructed the company to maintain loans in COVID-19 payment forbearance plans in mortgage-backed security pools for at least the duration of the forbearance plan, its less liquid assets are likely to increase in future periods as the company will likely purchase a higher amount of delinquent and modified loans out of Freddie Mac mortgage-backed security pools. Its less liquid assets are likely to increase in future periods as the company expects its ability to continue to sell less liquid assets at acceptable prices may be negatively affected by the market volatility caused by the pandemic. |
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 11
Housing Market Support
Freddie Mac supports the U.S. housing market by executing its Charter Mission to ensure credit availability for new and refinanced single-family mortgages as well as for rental housing, and by helping struggling homeowners avoid foreclosure. Despite the significant challenges presented by the pandemic, the company remains open for business.
Mortgage Funding – Freddie Mac provided approximately $152 billion in liquidity to the market in the three months ended March 31, 2020, funding:
• | Nearly 526,000 single-family homes, approximately 309,000 of which were refinance loans; and |
• | More than 111,000 multifamily rental units. |
Number of Families Helped to Own or Rent a Home
(In Thousands)
(1) As of March 31.
Amounts may not add due to rounding.
Preventing Foreclosures – Freddie Mac continued to help struggling borrowers retain their homes or otherwise
avoid foreclosure, completing nearly 11,000 single-family loan workouts in the three months ended March 31, 2020 compared to approximately 15,000 in the three months ended March 31, 2019.
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 12
About Freddie Mac’s Conservatorship
Since September 2008, Freddie Mac has been operating under conservatorship with FHFA as Conservator. The support provided by Treasury pursuant to the Purchase Agreement enables the company to maintain access to the debt markets and have adequate liquidity to conduct its normal business operations.
Treasury Draws(1) and Dividend Payments
(Dollars in billions)
(1) | Excludes the initial $1 billion liquidation preference of senior preferred stock issued to Treasury in September 2008 as consideration for Treasury’s funding commitment, and the increases in the aggregate liquidation preference of the senior preferred stock pursuant to the December 2017 and September 2019 Letter Agreements. The company received no cash proceeds in connection with the initial $1 billion liquidation preference of senior preferred stock or the $3 billion, $1.8 billion, $1.8 billion, and $2.4 billion increases on December 31, 2017, September 30, 2019, December 31, 2019, and March 31, 2020, respectively. |
(2) | As of March 31, 2020. |
• | 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 March 2020, and it will not be required to pay a dividend on the senior preferred stock to Treasury until its Net Worth Amount exceeds $20.0 billion. |
▪ | Pursuant to the September 2019 Letter Agreement, the liquidation preference of the senior preferred stock increased from $79.3 billion to $81.8 billion on March 31, 2020 based on the $2.4 billion increase in the Net Worth Amount during the fourth quarter of 2019. |
◦ | The liquidation preference will increase to $82.2 billion on June 30, 2020 based on the $0.4 billion increase in the Net Worth Amount during the first quarter of 2020. The variance between the company's $0.6 billion comprehensive income and the increase in the liquidation preference is due to an adjustment to retained earnings made on January 1, 2020, related to the adoption of CECL, which totaled $0.2 billion, net of income taxes. |
• | The amount of funding available to Freddie Mac under the Purchase Agreement remained $140.2 billion at March 31, 2020. |
Amounts may not add due to rounding.
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 13
Additional Information
For more information, including information related to Freddie Mac’s financial results, conservatorship, and related matters, see the company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and the company’s Financial Results Supplement. These documents are available on the Investor Relations page of the company’s website at www.FreddieMac.com/investors.
Additional information about Freddie Mac and its business is also set forth in the company’s other filings with the SEC, which are available on the Investor Relations page of the company’s website at www.FreddieMac.com/investors and the SEC’s website at www.sec.gov. Freddie Mac encourages all investors and interested members of the public to review these materials for a more complete understanding of the company’s financial results and related disclosures.
Webcast Announcement
Management will host a conference call at 9 a.m. Eastern Time on April 30, 2020 to discuss the company’s results with the media. The conference call will be concurrently webcast. To access the live audio webcast, use the following link: https://edge.media-server.com/mmc/p/x3m5nirr. The replay will be available on the company’s website at www.FreddieMac.com/investors for approximately 30 days. All materials related to the call will be available on the Investor Relations page of the company’s website at www.FreddieMac.com/investors.
Media Contact: Frederick Solomon (703) 903-3861 | Investor Contact: Laurie Garthune (571) 382-4732 |
* * * *
This press release contains forward-looking statements, which may include statements pertaining to the conservatorship, the company’s current expectations and objectives for its Single-Family Guarantee, Multifamily, and Capital Markets segments, its efforts to assist the housing market, liquidity and capital management, economic and market conditions and trends, the effects of the COVID-19 pandemic and actions taken in response thereto on its business, financial condition, and liquidity, its market share, the effect of legislative and regulatory developments and new accounting guidance, credit quality of loans the company owns or guarantees, the costs and benefits of the company’s CRT transactions, and results of operations and financial condition on a GAAP, Segment Earnings, non-GAAP, and fair value basis. Forward-looking statements involve known and unknown risks and uncertainties, some of which are beyond the company’s control. Management’s expectations for the company’s future necessarily involve a number of assumptions, judgments, and estimates, and various factors, including changes in market conditions, liquidity, mortgage spreads, credit outlook, uncertainty about the duration and severity, and effects of, the COVID-19 pandemic and actions taken in response thereto, actions by the U.S. government (including FHFA, Treasury, Congress, and state and local governments), and the impacts of legislation or regulations and new or amended accounting guidance, could cause actual results to differ materially from these expectations. These assumptions, judgments, estimates, and factors are discussed in the company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, which is available on the Investor Relations page of the company’s website at www.FreddieMac.com/investors and the SEC’s website at www.sec.gov. The company undertakes no obligation to update forward-looking statements it makes to reflect events or circumstances occurring after the date of this press release.
Freddie Mac makes home possible for millions of families and individuals by providing mortgage capital to lenders. Since its creation by Congress in 1970, the company has made housing more accessible and affordable for homebuyers and renters in communities nationwide. The company is building a better housing finance system for homebuyers, renters, lenders, and taxpayers. Learn more at FreddieMac.com, Twitter @FreddieMac and Freddie Mac’s blog FreddieMac.com/blog.
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 14
FREDDIE MAC
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In millions, except share-related amounts) | 1Q 2020 | 4Q 2019 | 1Q 2019 | ||||||
Interest income | |||||||||
Mortgage loans | $16,632 | $16,851 | $17,946 | ||||||
Investment securities | 652 | 678 | 689 | ||||||
Other | 308 | 378 | 351 | ||||||
Total interest income | 17,592 | 17,907 | 18,986 | ||||||
Interest expense | (14,807 | ) | (14,549 | ) | (15,833 | ) | |||
Net interest income | 2,785 | 3,358 | 3,153 | ||||||
Non-interest income (loss) | |||||||||
Guarantee fee income | 377 | 239 | 290 | ||||||
Investment gains (losses), net | (835 | ) | 901 | (513 | ) | ||||
Other income (loss) | 95 | 75 | (17 | ) | |||||
Non-interest income (loss) | (363 | ) | 1,215 | (240 | ) | ||||
Net revenues | 2,422 | 4,573 | 2,913 | ||||||
Benefit (provision) for credit losses | (1,233 | ) | 272 | 135 | |||||
Non-interest expense | |||||||||
Salaries and employee benefits | (341 | ) | (451 | ) | (322 | ) | |||
Professional services | (76 | ) | (103 | ) | (105 | ) | |||
Other administrative expense | (170 | ) | (193 | ) | (151 | ) | |||
Total administrative expense | (587 | ) | (747 | ) | (578 | ) | |||
Credit enhancement (expense) benefit, net | 236 | (214 | ) | (158 | ) | ||||
REO operations expense | (85 | ) | (57 | ) | (33 | ) | |||
Temporary Payroll Tax Cut Continuation Act of 2011 expense | (432 | ) | (420 | ) | (390 | ) | |||
Other expense | (103 | ) | (157 | ) | (124 | ) | |||
Non-interest expense | (971 | ) | (1,595 | ) | (1,283 | ) | |||
Income (loss) before income tax (expense) benefit | 218 | 3,250 | 1,765 | ||||||
Income tax (expense) benefit | (45 | ) | (658 | ) | (358 | ) | |||
Net income (loss) | 173 | 2,592 | 1,407 | ||||||
Other comprehensive income (loss), net of taxes and reclassification adjustments | |||||||||
Changes in unrealized gains (losses) related to available-for-sale securities | 438 | (139 | ) | 246 | |||||
Changes in unrealized gains (losses) related to cash flow hedge relationships | 13 | 14 | 18 | ||||||
Changes in defined benefit plans | (2 | ) | (19 | ) | (6 | ) | |||
Total other comprehensive income (loss), net of taxes and reclassification adjustments | 449 | (144 | ) | 258 | |||||
Comprehensive income (loss) | $622 | $2,448 | $1,665 | ||||||
Net income (loss) | $173 | $2,592 | $1,407 | ||||||
Undistributed net worth sweep, senior preferred stock dividends, or future increase in senior preferred stock liquidation preference | (382) | (2,448) | (1,665) | ||||||
Net income (loss) attributable to common stockholders | $(209) | $144 | $(258) | ||||||
Net income (loss) per common share — basic and diluted | $(0.06) | $0.04 | $(0.08) | ||||||
Weighted average common shares outstanding (in millions) — basic and diluted | 3,234 | 3,234 | 3,234 | ||||||
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
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FREDDIE MAC
Condensed Consolidated Balance Sheets (Unaudited)
March 31 | December 31, | |||||
(In millions, except share-related amounts) | 2020 | 2019 | ||||
Assets | ||||||
Cash and cash equivalents (includes $17,920 and $991 of restricted cash and cash equivalents) | $24,324 | $5,189 | ||||
Securities purchased under agreements to resell | 45,968 | 56,271 | ||||
Investment securities, at fair value | 79,189 | 75,711 | ||||
Mortgage loans held-for-sale (includes $13,518 and $15,035 at fair value) | 32,502 | 35,288 | ||||
Mortgage loans held-for-investment (net of allowance for credit losses of $6,121 and $4,234) | 2,014,155 | 1,984,912 | ||||
Accrued interest receivable | 6,841 | 6,848 | ||||
Derivative assets, net | 2,815 | 844 | ||||
Deferred tax assets, net | 4,629 | 5,918 | ||||
Other assets (includes $4,914 and $4,627 at fair value) | 31,561 | 22,799 | ||||
Total assets | $2,241,984 | $2,193,780 | ||||
Liabilities and equity | ||||||
Liabilities | ||||||
Accrued interest payable | $6,271 | $6,559 | ||||
Debt (includes $3,214 and $3,938 at fair value) | 2,216,135 | 2,169,685 | ||||
Derivative liabilities, net | 2,226 | 372 | ||||
Other liabilities | 7,848 | 8,042 | ||||
Total liabilities | 2,232,480 | 2,184,658 | ||||
Commitments and contingencies | ||||||
Equity | ||||||
Senior preferred stock (liquidation preference of $81,770 and $79,322) | 72,648 | 72,648 | ||||
Preferred stock, at redemption value | 14,109 | 14,109 | ||||
Common stock, $0.00 par value, 4,000,000,000 shares authorized, 725,863,886 shares issued and 650,059,033 shares outstanding | — | — | ||||
Additional paid-in capital | — | — | ||||
Retained earnings (accumulated deficit) | (74,255 | ) | (74,188 | ) | ||
AOCI, net of taxes, related to: | ||||||
Available-for-sale securities | 1,056 | 618 | ||||
Cash flow hedge relationships | (231 | ) | (244 | ) | ||
Defined benefit plans | 62 | 64 | ||||
Total AOCI, net of taxes | 887 | 438 | ||||
Treasury stock, at cost, 75,804,853 shares | (3,885 | ) | (3,885 | ) | ||
Total equity | 9,504 | 9,122 | ||||
Total liabilities and equity | $2,241,984 | $2,193,780 | ||||
The table below presents the carrying value and classification of the assets and liabilities of consolidated variable interest entities (VIEs) on the company's condensed consolidated balance sheets. | ||||||
March 31 | December 31, | |||||
(In millions) | 2020 | 2019 | ||||
Condensed Consolidated Balance Sheet Line Item | ||||||
Assets: | ||||||
Mortgage loans held-for-investment | $1,963,630 | $1,940,523 | ||||
All other assets | 53,415 | 40,598 | ||||
Total assets of consolidated VIEs | $2,017,045 | $1,981,121 | ||||
Liabilities: | ||||||
Debt | $1,930,005 | $1,898,355 | ||||
All other liabilities | 5,551 | 5,537 | ||||
Total liabilities of consolidated VIEs | $1,935,556 | $1,903,892 | ||||
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 16
FREDDIE MAC
Non-GAAP Reconciliations
The company’s GAAP net interest income includes the spread earned on its investment activities plus the guarantee fees earned by its single-family business. Adjusted net interest income is the net spread earned on the company’s investment activities, including the cost of funds associated with using derivatives. Net interest yield, GAAP and adjusted, is calculated as annualized quarterly GAAP or adjusted net interest income divided by the average balance of the underlying assets and liabilities. | |||||||||||||||
Reconciliation of GAAP Net Interest Income to Adjusted Net Interest Income (pre-tax) | |||||||||||||||
(Dollars in millions) | 1Q 2019 | 2Q 2019 | 3Q 2019 | 4Q 2019 | 1Q 2020 | ||||||||||
GAAP net interest income | $3,153 | $2,927 | $2,410 | $3,358 | $2,785 | ||||||||||
Reclassifications: | |||||||||||||||
Guarantee fee income reclassified to adjusted guarantee fee income (1)(2) | (2,022 | ) | (2,287 | ) | (2,486 | ) | (2,607 | ) | (2,561 | ) | |||||
Accrual of periodic cash settlements reclassified from derivative gain (loss) (3) | (54 | ) | (42 | ) | (47 | ) | (129 | ) | (176 | ) | |||||
Hedge accounting impact (4) | (267 | ) | 13 | 517 | (11 | ) | 350 | ||||||||
Other reclassifications (5) | 195 | 402 | 395 | 137 | 380 | ||||||||||
Total reclassifications | (2,148 | ) | (1,914 | ) | (1,621 | ) | (2,610 | ) | (2,007 | ) | |||||
Adjusted net interest income | $1,005 | $1,013 | $789 | $748 | $778 | ||||||||||
Average balance of assets and liabilities, GAAP (in billions) | $2,062 | $2,089 | $2,120 | $2,162 | $2,205 | ||||||||||
Average balance of assets and liabilities, adjusted (in billions) | $293 | $303 | $311 | $319 | $324 | ||||||||||
The company's GAAP guarantee fees are primarily those generated by the company's multifamily business. Adjusted guarantee fee income consists of the revenues from guarantee fees from both the single-family and multifamily businesses, net of the 10 basis point guarantee fee remitted to Treasury as part of the Temporary Payroll Tax Cut Continuation Act of 2011. | |||||||||||||||
Reconciliation of GAAP Guarantee Fee Income to Adjusted Guarantee Fee Income (pre-tax) | |||||||||||||||
(Dollars in millions) | 1Q 2019 | 2Q 2019 | 3Q 2019 | 4Q 2019 | 1Q 2020 | ||||||||||
GAAP guarantee fee income | $290 | $280 | $280 | $239 | $377 | ||||||||||
Reclassifications: | |||||||||||||||
Guarantee fee income reclassified from net interest income (1)(2) | 2,022 | 2,287 | 2,486 | 2,607 | 2,561 | ||||||||||
Temporary Payroll Tax Cut Continuation Act of 2011 expense reclassified from other non-interest expense (6) | (390 | ) | (399 | ) | (408 | ) | (420 | ) | (432 | ) | |||||
Total reclassifications | 1,632 | 1,888 | 2,078 | 2,187 | 2,129 | ||||||||||
Adjusted guarantee fee income | $1,922 | $2,168 | $2,358 | $2,426 | $2,506 | ||||||||||
Columns may not add due to rounding.
For notes on reclassifications, see page 17 of this press release.
Freddie Mac First Quarter 2020 Financial Results
April 30, 2020
Page 17
Notes on Significant Reclassifications
(1) Net guarantee fees, including upfront fees and related hedge amortization and implied guarantee fee income related to unsecuritized loans held in the mortgage-related investments portfolio, are reclassified from GAAP net interest income to adjusted guarantee fee income.
(2) Short-term returns on cash received related to certain upfront fees on single-family loans are reclassified from GAAP net interest income to adjusted guarantee fee income.
(3) The accrual of periodic cash settlements of derivatives is reclassified from GAAP investment gains (losses) to adjusted net interest income to fully reflect the periodic cost associated with the protection provided by these contracts.
(4) Hedge accounting impact consists of removing the effects of hedge accounting including deferred gains and losses on closed cash flow hedges related to forecasted debt issuances.
(5) Other reclassifications primarily relate to items reclassified out of GAAP net interest income, including the amortization related to derivative commitment basis adjustments associated with mortgage-related and non-mortgage-related securities, amortization related to accretion of other-than-temporary impairments on available-for-sale securities, amortization of discounts on loans purchased with deteriorated credit quality that are on accrual status, amortization related to premiums and discounts, including non-cash premiums and discounts, on single-family loans in trusts and on the associated consolidated securities, amortization related to premiums and discounts associated with securities issued by consolidated trusts that were previously held and subsequently transferred to third parties, costs associated with STACR debt note expenses, and internally allocated costs associated with the refinancing of debt related to Multifamily segment held-for-investment loans which were securitized.
(6) The expense related to the Temporary Payroll Tax Cut Continuation Act of 2011 is reclassified from GAAP other non-interest expense to adjusted guarantee fee income. As a result of the reclassification, the revenue and expense related to the legislated 10 basis point increase are netted within adjusted guarantee fee income.
Exhibit 99.2 First Quarter 2020 Financial Results Supplement April 30, 2020
COVID-19 Pandemic Response Efforts Employees & Vendors Sellers & Servicers Communities • We activated our Crisis Management • For sellers, we have introduced • For homeowners, we are offering Team to closely monitor the situation temporary measures to help provide additional mortgage relief options for and regularly update and advise our sellers with clarity and flexibility. borrowers affected by COVID-19, Board, senior leaders and staff. including: ▪ In the single-family market, this • We have taken several actions to includes: ▪ Providing mortgage forbearance for up to ensure business continuity, including: ◦ Allowing flexibility in demonstrating a 12 months; borrower's current employment status ▪ Waiving assessments of penalties and ▪ Requiring more than 95% of staff to work or the existence of a borrower's late fees; remotely; and business; ▪ Taking specific actions to protect and ◦ Establishing underwriting restrictions ▪ Suspending reporting to credit bureaus of support essential staff working in our applicable to a borrower's accounts delinquency related to forbearance; and containing stocks, stock options, and offices, such as social distancing, face ▪ Offering loan modification options that mutual funds due to current market coverings, and frequent deep cleanings; lower payments or keep payments the volatility; and same after the forbearance period. • We have also taken actions to support ◦ Permanently expanding the use of our staff and community, including: automated collateral evaluation • To keep renters in multifamily eligibility for certain mortgages.. ▪ Providing additional paid sick leave to our properties in their homes and to ▪ In the multifamily market, this staff to care for themselves or family support multifamily borrowers, we are: members due to COVID-19 related includes: ▪ Offering multifamily borrowers mortgage illness; ◦ Providing unprecedented flexibility to make appraisal and inspection forbearance, with the condition that they ▪ Partnering with our vendors to ensure decisions on a case-by-case basis to suspend all evictions for renters unable workers dedicated to Freddie Mac protect the safety of landlords, renters to pay rent due to this pandemic; and continue to receive pay and benefits; and and our staff; and ▪ Allowing multifamily borrowers with a fully ◦ Bringing new security issuances to ▪ Launching virtual volunteering performing loan as of February 1, 2020, market. opportunities for staff to support their to defer their loan payments for up to 90 communities. • For servicers, we will also be providing days by showing a COVID-19-related a payment deferral option to offer to hardship and by gaining lender approval. eligible homeowners on July 1, 2020. See the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, for additional information on its response efforts related to the COVID-19 pandemic. © Freddie Mac 2
Financial Highlights Comprehensive Income $ Billions ▪ Comprehensive income of $0.6 billion, down from the prior quarter, driven by higher credit- $2.4 related expenses, primarily due to higher expected credit losses as a result of the COVID-19 pandemic, lower gains on single- $1.7 $1.8 $1.8 family asset disposition activity, and higher market-related losses, primarily driven by spread widening due to the pandemic. $0.6 1Q19 2Q19 3Q19 4Q19 1Q20 Adjusted Net Interest Income ▪ Adjusted net interest income increased slightly from the prior quarter, primarily driven by and Adjusted Guarantee Fee Income lower funding costs due to the decline in interest $ Billions rates as a result of the pandemic, partially offset $2.4 $2.4 $2.5 by a higher proportion of the lower yielding other $2.2 investments portfolio. $1.9 Adjusted guarantee fee income increased $1.0 $1.0 ▪ $0.8 $0.7 $0.8 slightly from the prior quarter, primarily driven by increases in Multifamily guarantee fee income and Single-Family contractual guarantee fee income, which were partially offset by lower 1Q19 2Q19 3Q19 4Q19 1Q20 Single-Family upfront fee amortization income due to lower loan prepayments compared to the Adjusted net interest income1 Adjusted guarantee fee income1 prior quarter. Note: Totals may not add due to rounding. © Freddie Mac 3
Total Portfolio Balances 2 Total guarantee portfolio Portfolio balance highlights $ Billions 6% YoY increase ▪ Total guarantee portfolio: $2,265 $2,295 $2,157 $2,184 $2,221 • Single-Family - grew $106 billion, or 6%, year-over- $271 $275 year. $243 $249 $260 • Multifamily - grew $32 billion, or 13%, year-over- year. $1,914 $1,935 $1,961 $1,994 $2,020 ▪ Total investments portfolio: 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 • Mortgage-related investments portfolio - decreased $8 billion, or 4%, year-over-year. Single-Family credit guarantee portfolio Multifamily guarantee portfolio3 Total investments portfolio 4,5 Purchase Agreement Total debt outstanding Debt Cap $300B $ Billions $ Billions 13% YoY 2.6 2.6 2.5 2.4 2.4 increase $334 $258 $274 $273 $288 $296 $302 $312 $316 $270 7% 6% 6% 6% 5% $123 $77 $83 $90 $103 36% 34% 40% 37% 45% FHFA 39% 35% Limit 47% 38% 30% $219 $219 $222 $213 $211 $225B* 18% 13% 16% 22% 20% 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 Discount notes Callable debt Mortgage-related investments portfolio2,4 Non-callable debt Other Other investments portfolio Weighted average maturity in years Note: Totals may not add due to rounding. © Freddie Mac 4 *In February 2019, FHFA directed the company to maintain the mortgage-related investments portfolio at or below $225 billion at all times.
Conservatorship Matters and Total Equity Treasury draws and dividend payments Total Equity / Net Worth $ Billions $ Billions $119.7 $112.4 6 $71.3 $71.6 $9.1 $9.5 $4.5 $0.3 $4.1 $3.1 2008-2017 2018 2019 2020 Cumulative $(0.3) Total Draws from Treasury Dividend payments to Treasury 2017 2018 2019 YTD 2020* • Pursuant to the September 2019 Letter Agreement, the company will not have a dividend requirement on the senior preferred stock until its Net Worth Amount exceeds $20.0 billion. Note: Totals may not add due to rounding. © Freddie Mac 5 *As of March 31, 2020.
Key Economic Indicators National home prices increased by an average of 5.2% Quarterly ending interest rates over the past year 4.06% 3.73% 3.64% 3.74% 3.50% 2.41% 1.96% 1.89% 1.57% 0.72% 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 30-year mortgage rate, based on Primary Mortgage Market Survey (PMMS) 10-year LIBOR Unemployment rate and job creation 203,000 210,000 4.4% 139,000 159,000 3.8% 3.7% National home prices continued upward trend 3.5% 3.5% 201 168 (2006 Peak) (71,000) 1Q19 2Q19 3Q19 4Q19 1Q20 Freddie Mac House Price Index (December 2000 = 100) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Average monthly net new jobs (non-farm) National unemployment rate (as of the last month in United States (Not Seasonally Adjusted) each quarter) © Freddie Mac 6
Single-Family Guarantee Financial Highlights and Key Metrics Single-Family Guarantee Segment Earnings New business activity $ Billions $ Millions $1,420 Guarantee fees charged on new acquisitions (bps)7 $1,250 48 49 44 45 40 $955 $147 $134 $138 $740 $588 $102 $58 $84 $83 $70 $37 $24 $76 $46 $65 $63 $55 1Q19 2Q19 3Q19 4Q19 1Q20 1Q19 2Q19 3Q19 4Q19 1Q20 Home purchase UPB Refinance UPB New Busn G-fee Credit guarantee portfolio 6% YoY Serious delinquency rates $ Billions increase 1.91% 1.82% 1.77% 1.84% 1.79% $2,020 $1,914 $1,935 $1,961 $1,994 $281 $335 $322 $307 $293 0.67% 0.63% 0.61% 0.63% 0.60% $1,579 $1,613 $1,654 $1,701 $1,739 0.22% 0.23% 0.24% 0.26% 0.26% (82%) (83%) (84%) (85%) (86%) 1Q19 2Q19 3Q19 4Q19 1Q20 1Q19 2Q19 3Q19 4Q19 1Q20 Core single-family portfolio (loans originated post-2008) Core single-family portfolio (loans originated post-2008) Legacy and relief refinance single-family portfolio Legacy and relief refinance single-family portfolio Total Note: Totals may not add due to rounding. © Freddie Mac 7
Single-Family Guarantee Loan Purchase Credit Characteristics Weighted average original loan-to-value ratio (OLTV) Weighted average credit score 747 750 752 752 752 77% 77% 77% 75% 74% 1Q19 2Q19 3Q19 4Q19 1Q20 1Q19 2Q19 3Q19 4Q19 1Q20 New business activity with debt-to-income ratio > 45 % Loan purpose and investment properties as a percentage of loan purchases 6% 5% 4% 4% 5% 15% 16% 18% 27% 37% 39% 14% 14% 20% 18% 16% 13% 13% 20% 21% 65% 64% 57% 43% 40% 1Q19 2Q19 3Q19 4Q19 1Q20 Home purchase Cash-out refinance 1Q19 2Q19 3Q19 4Q19 1Q20 Investment properties as a Other refinance Investment properties as a % of purchases percentage of loan purchases © Freddie Mac 8
Single-Family Guarantee Credit Risk Transfer (CRT) – STACR / ACIS Total single-family credit guarantee portfolio with Cumulative single-family transferred credit risk transferred credit risk based on outstanding balance at period end $ Billions $ Billions Outstanding reference pool UPB as a percentage of total single-family portfolio 49% 44% 45% 35% 26% $28.2 $26.9 $28.1 $28.1 $27.9 $1,508 $1,376 $1,144 $906 $983 $858 $838 $1.7 $1.3 $1.4 $1.1 $1.4 $598 $648 $457 $9.3 $6.1 $5.8 $6.7 $5.9 $7.3 $6.0 $8.0 $5.9 $6.2 2016 2017 2018 2019 YTD 2020* 3/31/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 Reference pool UPB at issuance First loss positions: Retained by Freddie Mac Reference pool UPB outstanding Mezzanine loss positions: Retained by Freddie Mac First loss positions: Transferred to third parties Mezzanine loss positions: Transferred to third parties • This slide reflects STACR and ACIS CRT transactions only. It excludes senior subordinate securitization structures and lender risk-sharing transactions. *As of March 31, 2020. © Freddie Mac 9
Multifamily Financial Highlights and Key Metrics Multifamily comprehensive income (loss) Multifamily acquisitions of units by area median $ Millions income (AMI) (% of eligible units acquired) 6% 9% 7% 6% 4% $591 $502 $395 $440 94% 91% 93% 94% 96% $(174) 1Q19 2Q19 3Q19 4Q19 1Q20 2016 2017 2018 2019 YTD 2020* ≤120% AMI >120% AMI 45% increase Multifamily market and Freddie Mac delinquency Total portfolio since 2016 $ Billions $309$310 $309$310 rates $280 $33 $29 $249 $36 $213 $6 $6 $39 $7 $42 $7 1.05% $13 $271 $275 $203 $237 4Q19 0.11% $158 (82%) (85%) (88%) (89%) (74%) 0.08% 12/31/2016 12/31/2017 12/31/2018 12/31/2019 3/31/2020 1Q16 1Q17 1Q18 1Q19 1Q20 Guarantee portfolio Mortgage-related securities Freddie Mac (60+ day) FDIC insured institutions (90+ day) Unsecuritized loans and other MF CMBS market (60+ day) Note: Totals may not add due to rounding. © Freddie Mac *As of March 31, 2020. 10
Multifamily Key Metrics, continued New business activity Multifamily securitization activity8,9 $ Billions $ Billions $78.4 $78.0 $75.4 $73.2 $0.5 $0.5 $72.8 $67.5 $6.5 $7.5 $6.8 $56.8 $52.1 $2.2 $77.9 $73.2 $77.5 $66.3 $67.9 $56.8 $60.7 $49.9 $12.3 $10.0 $0.1 $1.7 $9.9 $10.6 2016 2017 2018 2019 YTD 2020* 2016 2017 2018 2019 YTD 2020* New loan purchase activity LIHTC new business activity Primary securitization products Other securitization products • The multifamily loan purchase cap is $100.0 billion for the five-quarter period from the fourth quarter of 2019 through the fourth quarter of 2020, and at least 37.5% must be mission- driven affordable housing. As of March 31, 2020, the total cumulative new business activity subject to the cap was $27.4 billion, and approximately 39% was mission-driven affordable housing. Note: Totals may not add due to rounding. © Freddie Mac 11 *As of March 31, 2020.
Capital Markets Financial Highlights and Key Metrics Capital Markets comprehensive income Capital Markets investments portfolio $ Millions $ Billions 18% YoY increase $269 $291 $247 $254 $258 $268 $534 $539 $120 $433 $76 $81 $87 $100 $210 $171 $173 $171 $168 $171 $10 1Q19 2Q19 3Q19 4Q19 1Q20 1Q19 2Q19 3Q19 4Q19 1Q20 Mortgage investments portfolio Other investments portfolio Capital Markets cash window securitization Capital Markets mortgage investments portfolio $ Billions $ Billions $73 Flat YoY $59 $59 $171 $173 $171 $168 $171 $42 $39 $34 $30 $28 $45 $13 $16 $21 $19 $26 $30 $116 $118 $116 $119 $116 (68%) (68%) (68%) (71%) (68%) 1Q19 2Q19 3Q19 4Q19 1Q20 1Q19 2Q19 3Q19 4Q19 1Q20 Liquid Securitization pipeline Less liquid Note: Totals may not add due to rounding. © Freddie Mac 12
Housing Market Support Number of families Freddie Mac helped Number of single-family loan workouts11 to own or rent a home10 In Thousands In Thousands 2,578 2,311 2,192 782 663 442 90 3 75 16 5 15 11 884 987 828 10 47 2 7 637 9 449 60 309 45 820 866 809 108 15 29 3 11 192 217 3 31 149 111 9 7 2017 2018 2019 YTD 2019* YTD 2020* 2017 2018 2019 YTD 2019* YTD 2020* Multifamily rental units Loan modifications12 Home Single-Family purchase borrowers Repayment plans12 Retention Actions Single-Family refinance borrowers Forbearance agreements12 Short sales and deed-in-lieu Foreclosure of foreclosure transactions12 Alternatives Note: Totals may not add due to rounding. © Freddie Mac 13 *As of March 31.
Endnotes 1 For additional information regarding Freddie Mac’s non-GAAP financial measures and reconciliations to the comparable amounts under GAAP, see the company’s Press Release for the quarter ended March 31, 2020. 2 Based on unpaid principal balances (UPB) of loans and securities. Excludes mortgage-related securities traded, but not yet settled. In November 2019, FHFA directed Freddie Mac, by January 31, 2020, to include 10% of the notional value of certain interest-only securities owned by the company in the calculation of this portfolio, while continuing to maintain the portfolio below the limit imposed by FHFA. For this purpose, the mortgage-related investments portfolio was $215.5 billion as of March 31, 2020, including $4.3 billion representing 10% of the notional amount of the interest-only securities the company held as of March 31, 2020. 3 Primarily Freddie Mac’s K Certificate and SB (Small Balance) Certificate transactions. 4 The company’s Purchase Agreement with Treasury limits the amount of mortgage assets the company can own and indebtedness it can incur. See the company’s Annual Report on Form 10-K for the year ended December 31, 2019 for more information. 5 Represents the company’s aggregate indebtedness for purposes of the Purchase Agreement debt cap and primarily includes the par value of other short-term and long-term debt used to fund its business activities. Beginning in 2020, the company offset amounts recognized as payables under repurchase agreements accounted for as collateralized borrowings and amounts recognized as receivables under reverse repurchase agreements accounted for as collateralized borrowings when such amounts meet the conditions for offsetting repurchase and reverse repurchase agreements in FASB ASC Subtopic 210-20 (Balance Sheet - Offsetting). Previously, such amounts were presented on a gross basis, with amounts recognized as payables under repurchase agreements accounted for as collateralized borrowings included in Other Debt and amounts recognized as receivables under reverse repurchase agreements accounted for as collateralized borrowings included in Other Investments. Prior periods have been revised to conform to the current period presentation. 6 Excludes the initial $1 billion liquidation preference of the senior preferred stock issued to Treasury in September 2008 as consideration for Treasury’s funding commitment, and the increases in the aggregate liquidation preference of the senior preferred stock pursuant to the December 2017 and September 2019 Letter Agreements. The company received no cash proceeds in connection with the initial $1 billion liquidation preference of senior preferred stock or the $3.0 billion, $1.8 billion, $1.8 billion, and $2.4 billion increases on December 31, 2017, September 30, 2019, December 31, 2019, and March 31, 2020, respectively. 7 Represents the estimated average rate of guarantee fees for new acquisitions during the period assuming amortization of upfront fees using the estimated life of the related loans rather than the original contractual maturity date of the related loans. Includes the effect of fee adjustments that are based on the price performance of Freddie Mac’s PCs relative to comparable Fannie Mae securities. Net of legislated 10 basis point guarantee fee remitted to Treasury as part of the Temporary Payroll Tax Cut Continuation Act of 2011. 8 Multifamily's primary securitization products are K Certificates and SB Certificates. In these transactions, the company guarantees the senior securities, but does not issue or guarantee the mezzanine or subordinated securities. The interest-rate risk and a large majority of expected and stress credit risk is sold to third-party investors through the mezzanine and subordinated securities, thereby reducing the company's risk exposure. 9 Excludes re-securitization UPB of primary and other securitization products. 10 Based on the company’s purchases of loans and issuances of mortgage-related securities. For the periods presented, a borrower may be counted more than once if the company purchased more than one loan (purchase or refinance mortgage) relating to the same borrower. 11 Consists of both home retention actions and foreclosure alternatives. 12 Categories are not mutually exclusive, and a borrower in one category may also be included in another category in the same or another period. For example, a borrower helped through a home retention action in one period may subsequently lose his or her home through a foreclosure alternative in a later period. © Freddie Mac 14
Safe Harbor Statements Freddie Mac obligations Freddie Mac’s securities are obligations of Freddie Mac only. The securities, including any interest or return of discount on the securities, are not guaranteed by and are not debts or obligations of the United States or any federal agency or instrumentality other than Freddie Mac. No offer or solicitation of securities This presentation includes information related to, or referenced in the offering documentation for, certain Freddie Mac securities, including offering circulars and related supplements and agreements. Freddie Mac securities may not be eligible for offer or sale in certain jurisdictions or to certain persons. This information is provided for your general information only, is current only as of its specified date, and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information does not constitute a sufficient basis for making a decision with respect to the purchase or sale of any security. All information regarding or relating to Freddie Mac securities is qualified in its entirety by the relevant offering circular and any related supplements. Investors should review the relevant offering circular and any related supplements before making a decision with respect to the purchase or sale of any security. In addition, before purchasing any security, please consult your legal and financial advisors for information about and analysis of the security, its risks, and its suitability as an investment in your particular circumstances. Forward-looking statements Freddie Mac's presentations may contain forward-looking statements, which may include statements pertaining to the conservatorship, the company’s current expectations and objectives for its Single-family Guarantee, Multifamily, and Capital Markets segments, its efforts to assist the housing market, liquidity and capital management, economic and market conditions and trends, the effects of the COVID-19 pandemic and actions taken in response thereto on its business, financial condition, and liquidity, its market share, the effect of legislative and regulatory developments and new accounting guidance, credit quality of loans the company owns or guarantees, the costs and benefits of the company’s credit risk transfer transactions, and results of operations and financial condition on a GAAP, Segment Earnings, non-GAAP, and fair value basis. Forward-looking statements involve known and unknown risks and uncertainties, some of which are beyond the company’s control. Management’s expectations for the company’s future necessarily involve a number of assumptions, judgments, and estimates, and various factors, including changes in market conditions, liquidity, mortgage spreads, credit outlook, uncertainty about the duration and severity, and effects of, the COVID-19 pandemic and actions taken in response thereto, actions by the U.S. government (including FHFA, Treasury, Congress, and state and local governments), and the impacts of legislation or regulations and new or amended accounting guidance, could cause actual results to differ materially from these expectations. These assumptions, judgments, estimates, and factors are discussed in the company’s Annual Report on Form 10-K for the year ended December 31, 2019, Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and Current Reports on Form 8-K, which are available on the Investor Relations page of the company’s website at www.freddiemac.com/investors and the SEC’s website at www.sec.gov. The company undertakes no obligation to update forward-looking statements it makes to reflect events or circumstances occurring after the date of this presentation. © Freddie Mac 15