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Freddie Mac at Mid-year: Meeting Our Commitment to the Housing Market, Taxpayers

/cEO Donald H. Layton

This morning, Freddie Mac reported pre-tax net income of $6.5 billion for the third quarter of 2013, which is our eighth consecutive quarter of positive earnings and now the second largest in our company's history. Our net income was $30.5 billion this quarter, while comprehensive income – which we believe to be the most important measurement of our results – was $30.4 billion. This includes a one-time federal income tax benefit of $23.9 billion.

It's yet another sign that the company is making very good progress moving forward on four key priorities: returning value to taxpayers, helping struggling homeowners, building a strong book of business, and shifting risk to the private market and away from taxpayers.

Returning Value to Taxpayers

The company's sustained profitability has significantly increased our ability to return value to taxpayers. Including the scheduled December payment, $71.345 billion, compared to the $71.336 billion that we've drawn from the Treasury. However, it's important to note that dividend payments do not offset prior draws and that Treasury still maintains a liquidation preference of $72.3 billion on the company's senior preferred stock.

Helping Homeowners and Prudently Managing Losses

Our work helping struggling homeowners remains a top priority for us and one that has the added benefit of helping to manage losses. In the first nine months of this year, we helped another 128,000 borrowers avoid foreclosure – bringing the total to 913,000 since the beginning of 2009. We continue to improve and expand our foreclosure prevention programs – in July we introduced a streamlined modification program that provides servicers with another, more efficient, avenue to help homeowners.

We made progress in resolving remaining legacy repurchase issues through three large settlements in the third quarter. In October, we also reached a substantial deal with JP Morgan Chase to settle such claims. We benefitted as well from the settlement of FHFA-initiated litigation against JPMorgan Chase related to investments in private-label securities, a settlement that will be reflected in our fourth quarter results. We will continue to work with FHFA on
resolving our legacy repurchase and litigation issues through equitable agreements that allow us and our lending partners to move forward.

At the same time, we are doing everything we can to help our customers succeed under our new representation and warranty framework – the guidelines under which lenders sell us loans – by minimizing uncertainty. We're doing this through new tools, technology and processes, and our efforts are working. The average aggregate deficiency rate across all seller/servicers decreased from 13 percent in 2010 to 3 percent in 2012.

Building a Strong Book of Business by Promoting Sustainable Homeownership

In the first nine months of 2013, we provided $382 billion in funding to the mortgage market – bringing the total to more than $2.1 trillion since 2009. This helped nearly 11 million families buy, refinance or rent a home. Importantly, these loans are putting families in homes that they can afford now and also keep for the long-term.

Through these efforts, we're building an extremely high quality new book of business that represents an increasing share of our total single-family portfolio. Our post-2008 loans, excluding Relief Refinance loans, grew to 52 percent of the single-family credit guarantee portfolio during the second quarter. The serious delinquency rate on these loans is less than half of one percent, which is about the same as the pre-crisis level.

Another 21 percent of the post-2008 single family credit guarantee portfolio is composed of relief refinancings, including HARP loans, which though they tend to have higher delinquency rates than other post-2008 loans, still have a serious delinquency rate of less than one percent. HARP continues to help underwater homeowners nationwide. In the first nine months of this year, we helped nearly 300,000 borrowers lower their payments or improve their mortgage terms through this program – bringing the total to over 1.2 million since HARP's debut in 2009.

Taken together, our efforts to manage losses and build a new book of business continued to drive serious delinquency rates lower. Freddie Mac's single-family serious delinquency rate dropped significantly to 2.58 percent during the third quarter. That's a 67 basis point decrease since the beginning of the year, and less than half the average of the U.S. mortgage market at 5.88 percent. And the multifamily serious delinquency rate edged even closer to zero; it was 0.05 percent at the end of this quarter.

Innovations Shift Credit Risk to the Private Market, Away From Taxpayers

In an effort to bring private capital back into the market, Freddie Mac has led the industry in developing new ways to share single-family credit risk Earlier this week, we priced our second single-family risk transfer transaction – $630 million in STACRSM debt notes. The market reception was extremely strong. This offering was modeled after the very successful deal we closed in July – the first of its kind in the market.

On the Multifamily side, we completed our fifteenth K-Deal offering of the year during the quarter and we've since done two more. This highly successful structure lays off more than 95 percent of the credit risk to investors. We've done more than 50 of these transactions since 2008 – totaling approximately $64 billion.

In summary, I believe we continue to make strong progress at Freddie Mac. In fact, we're a stronger and better run company than we have been in years. Moving forward, we remain committed to supporting the housing market, serving our customers, and building a stronger future for America's families.


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