Freddie Mac earns $2.39B in Q2, 14% lower year-over-year

Freddie Mac’s net income declined 14% year-over-year in the second quarter, because it increased its provision for credit losses.

Fannie Mae, when it reported earnings on Wednesday, cited a similar reason as contributing to its own second quarter drop off.

Still, Freddie Mac reported net income of $2.39 billion, compared with $2.83 billion in the prior quarter and $2.76 billion one year ago.

Chief Financial Officer Jim Whitlinger started the earnings call by noting the profitable quarter boosted Freddie Mac’s net worth to $65 billion as of June 30. This represents a 22% increase from the same day one year ago.

He ended the presentation speaking about efforts to reduce costs for lenders, borrowers and renters, tying it to the work done by Federal Housing Finance Agency Director Bill Pulte, who is also the chairman at both Freddie Mac and Fannie Mae.

“The actions of the director of U.S. Federal Housing Bill Pulte are further transformation of the business, making us more efficient and effective,” Whitlinger said. “We’re working closely with US Federal Housing to lower expenses, increase revenue and improve productivity wherever we can.”

Whitlinger’s example of this was Pulte’s recent announcement “to increase competition among the credit scoring agencies,” by allowing Freddie Mac and Fannie Mae to accept mortgages scored by VantageScore 4.0 in addition to Classic FICO.

“These actions ultimately will result in an even safer and stronger Freddie Mac and a better U.S. housing finance system,” he continued. “That is our mission.”

The higher provision for loan losses of $783 million, versus $394 million in the second quarter of 2024, came from both the single- and multifamily segments and resulted from current and future home price appreciation slow downs, Whitlinger said.

For single-family alone, Freddie Mac took a $622 million provision, “primarily due to a credit reserve build driven by modeled and observed house price declines, lower forecasted house price appreciation and provision on new originations under CECL recognition as we continue to grow our single-family portfolio,” Whitlinger said.

For the second quarter last year, the provision was $315 million, which was related to its new acquisitions during the period.

Freddie Mac’s internal model found home prices declined by 0.6% during the quarter. This led to a revision in its outlook.

“Our current house price forecast assumes an increase of 1.3% over the next 12 months and 0.4% over the subsequent 12 months,” Whitlinger said. “This is a change from our forecast at the end of last quarter, which assumed 4.2% growth over the next 12 months and 2.8% growth over the subsequent 12 months.”

The single-family serious delinquency rate ended the period at 55 basis points, 4 basis points lower than the first quarter but up basis points from one year ago.

“This was primarily driven by a higher serious delinquency rate for loans originated during 2022 and later, as well as lingering impacts from hurricanes that occurred in late 2024,” he explained.

The single-family segment had net income of $2.09 billion for the quarter, compared with $2.26 billion for the first quarter and $2.28 billion one year ago.

New business activity of $94 billion ($76 billion purchase, $18 billion refinance) was up from $78 billion in the first quarter ($62 billion purchase) and $85 billion for the second quarter of 2024 ($74 billion purchase).

On the multifamily side, net income of $295 billion was lower than the first quarter’s $533 billion and the year ago quarter’s $481 billion.

This segment’s provision for loan losses of $161 million was a result of new loan purchase commitment and acquisition activity at Freddie Mac, coupled with deterioration in the credit performance of certain delinquent loans.

The $12 billion in new business activity was in line with the first quarter’s $10 billion and $11 billion one year ago. The fourth quarter of 2024 had an outsized amount of activity at $30 billion.