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Freddie Mac Turns Corner to Full-Year Profitability
Freddie Mac's net income increased by 55 percent in the
fourth quarter of 2012 primarily due to a decrease in newly delinquent loans
and an improvement in home prices. The
company reported net income on Thursday of $4.5 billion compared to $2.9
billion in the third quarter of 2012.
Comprehensive net income in the fourth quarter was $5.7
billion compared to $5.6 billion in the third quarter and for the entire year
comprehensive net income was $11.0 billion and comprehensive income was $16.0
billion compared to losses of $5.3 billion and $1.2 billion respectively in
2011.
"In 2012, Freddie Mac significantly improved
its
financial performance
and returned more than $7 billion
to America's taxpayers through dividends," said Freddie Mac
CEO
Donald H. Layton. "It's
clear
from
our earnings that the
housing market has
turned a corner and that our
work
to minimize legacy losses and build a strong new
book of business is paying off.
The company's
$(0.6) billion provisions for credit losses in the third quarter turned into a
[forwardfullbody].7 billion benefit in the fourth quarter.
Provisions for losses narrowed for the entire year to $(1.9) billion
from $(10.7) billion in 2011.
The company will not require a draw from
Treasury for the fourth quarter because it had a positive net worth at
quarter's end of $8.8 billion. This
reflects $4.9 billion net worth at the end of the third quarter and fourth
quarter comprehensive income of $5.7 billion.
The latter is partially offset by the $1.8 billion the company will pay
to the Treasury as a dividend on senior preferred stock. Freddie Mac has not requested a draw from
Treasury since the second quarter of 2012 and requested an aggregate [forwardfullbody].3
billion in the first and second quarter of 2012.
Since the
company was placed into conservatorship under the Federal Housing Finance Agency
in August 2008 it has paid $23.8 billion in cash
dividends to Treasury on the
company's senior preferred stock. This represents 33 percent of the company's cumulative draws
received
under the Purchase Agreement with Treasury. In addition, in September 2012, Freddie Mac began
remitting proceeds to Treasury from the
10 basis point guarantee fee increase
required
by the Temporary Payroll Tax Cut Continuation Act of 2011. The guarantee fees related to
this
increase totaled $108 million for
2012.
[Image or graph removed from email. View full article with images]
In August 2012 the company signed an agreement with Treasury to replace
the fixed 10 percent
dividend rate established by
its original stock purchase agreement with
a net worth sweep
dividend
and suspended the periodic commitment fees. Under this amendment which became effective on January 1 Freddie Mac is required
to
pay dividends to the extent that its Net Worth
Amount,
as defined in
the Purchase Agreement, exceeds the permitted capital reserve. The amount of
the permitted capital reserve is
$3 billion in 2013
and will be reduced
by $600 million each year
thereafter
until it reaches zero in
2018. The amendment effectively ends the circular practice of
taking draws from Treasury to
pay dividends to Treasury. Based on Freddie Mac's Net Worth Amount at December 31, 2012,
the company's net worth
sweep dividend obligation
to Treasury in March 2013 will be $5.8 billion.
Beginning
January 1, 2013, the amount of remaining funding available to
Freddie Mac under the
Purchase Agreement with Treasury is
$140.5 billion. This reflects the remaining funding available as
of December 31, 2009 of $149.3 billion less the company's
net
worth of $8.8 billion at December 31, 2012.
Freddie
Mac reported that in 2012 it had provided relief financing to 687,000 borrowers
through the Home Affordable Refinance Program (HARP) and other relief programs
and had refinanced 996,000 borrowers through traditional programs. The company financed 353,000 home purchases
and 436,000 multi-family units. Through
these programs it provided $427 billion in liquidity to the market in
2012. Freddie Mac's various foreclosure
prevention programs reached 169,000 homeowners in 2012.
The
credit quality of Freddie Mac's loans have continued to improve although the
average LTV of its relief refinance loans jumped from 77 percent in 2011 to 97
percent in 2012 due to enhancements of the HARP program. HARP loans with LTVs over 125 percent
represented 23 percent of the HARP loans purchased by Freddie Mac in 2012. The average weighted credit score of relief
refinances was 740 and was 762 for all other loans.
At December 31, 2012,
loans originated after 2008 accounted for 63
percent of the value of Freddie Mac's single-family credit guarantee
portfolio and HARP loans
represented 11
percent of that portfolio.
Since the beginning of
2008, on an aggregate
basis, the company has recorded provision for
credit losses of $75.2
billion
associated with
single-family loans
and recorded an additional $3.9 billion in losses
on loans purchased from the company's PC trusts, net of recoveries. The majority of these
losses are
associated with loans
originated in
2005 through 2008 and this
vintage of loan is an increasingly smaller portion of the company's single-family
credit guarantee
portfolio. At December 31, 2012, loans
originated in
2005 through 2008 represented 24
percent of the company's
single-family credit guarantee
portfolio, based
on UPB, down
from 32 percent at
December 31, 2011.
[Image or graph removed from email. View full article with images]
The serious
delinquency rate in the company's single-family portfolio was 3.25 percent at
the end of the fourth quarter compared to 3.37 percent at the end of the third
quarter and 3.58 percent on December 31, 2011.
The Mortgage Bankers Association's National Delinquency Survey put the
U.S. average serious delinquency rate at the end of the fourth quarter at 6.78
percent.
The multifamily delinquency rate was down to 0.19 percent on December
31, 2012 compared to 0.27 percent on September 30 and 0.22 percent at the end
of December 2011. Freddie Mac said its
multifamily delinquency rate reflects the continued improvement in the overall multifamily market and remains low compared to other industry participants.
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Freddie Mac Turns Corner to Full-Year Profitability
Freddie Mac's net income increased by 55 percent in the
fourth quarter of 2012 primarily due to a decrease in newly delinquent loans
and an improvement in home prices. The
company reported net income on Thursday of $4.5 billion compared to $2.9
billion in the third quarter of 2012.
Comprehensive net income in the fourth quarter was $5.7
billion compared to $5.6 billion in the third quarter and for the entire year
comprehensive net income was $11.0 billion and comprehensive income was $16.0
billion compared to losses of $5.3 billion and $1.2 billion respectively in
2011.
"In 2012, Freddie Mac significantly improved
its
financial performance
and returned more than $7 billion
to America's taxpayers through dividends," said Freddie Mac
CEO
Donald H. Layton. "It's
clear
from
our earnings that the
housing market has
turned a corner and that our
work
to minimize legacy losses and build a strong new
book of business is paying off.
The company's
$(0.6) billion provisions for credit losses in the third quarter turned into a
[forwardfullbody].7 billion benefit in the fourth quarter.
Provisions for losses narrowed for the entire year to $(1.9) billion
from $(10.7) billion in 2011.
The company will not require a draw from
Treasury for the fourth quarter because it had a positive net worth at
quarter's end of $8.8 billion. This
reflects $4.9 billion net worth at the end of the third quarter and fourth
quarter comprehensive income of $5.7 billion.
The latter is partially offset by the $1.8 billion the company will pay
to the Treasury as a dividend on senior preferred stock. Freddie Mac has not requested a draw from
Treasury since the second quarter of 2012 and requested an aggregate [forwardfullbody].3
billion in the first and second quarter of 2012.
Since the
company was placed into conservatorship under the Federal Housing Finance Agency
in August 2008 it has paid $23.8 billion in cash
dividends to Treasury on the
company's senior preferred stock. This represents 33 percent of the company's cumulative draws
received
under the Purchase Agreement with Treasury. In addition, in September 2012, Freddie Mac began
remitting proceeds to Treasury from the
10 basis point guarantee fee increase
required
by the Temporary Payroll Tax Cut Continuation Act of 2011. The guarantee fees related to
this
increase totaled $108 million for
2012.
In August 2012 the company signed an agreement with Treasury to replace
the fixed 10 percent
dividend rate established by
its original stock purchase agreement with
a net worth sweep
dividend
and suspended the periodic commitment fees. Under this amendment which became effective on January 1 Freddie Mac is required
to
pay dividends to the extent that its Net Worth
Amount,
as defined in
the Purchase Agreement, exceeds the permitted capital reserve. The amount of
the permitted capital reserve is
$3 billion in 2013
and will be reduced
by $600 million each year
thereafter
until it reaches zero in
2018. The amendment effectively ends the circular practice of
taking draws from Treasury to
pay dividends to Treasury. Based on Freddie Mac's Net Worth Amount at December 31, 2012,
the company's net worth
sweep dividend obligation
to Treasury in March 2013 will be $5.8 billion.
Beginning
January 1, 2013, the amount of remaining funding available to
Freddie Mac under the
Purchase Agreement with Treasury is
$140.5 billion. This reflects the remaining funding available as
of December 31, 2009 of $149.3 billion less the company's
net
worth of $8.8 billion at December 31, 2012.
Freddie
Mac reported that in 2012 it had provided relief financing to 687,000 borrowers
through the Home Affordable Refinance Program (HARP) and other relief programs
and had refinanced 996,000 borrowers through traditional programs. The company financed 353,000 home purchases
and 436,000 multi-family units. Through
these programs it provided $427 billion in liquidity to the market in
2012. Freddie Mac's various foreclosure
prevention programs reached 169,000 homeowners in 2012.
The
credit quality of Freddie Mac's loans have continued to improve although the
average LTV of its relief refinance loans jumped from 77 percent in 2011 to 97
percent in 2012 due to enhancements of the HARP program. HARP loans with LTVs over 125 percent
represented 23 percent of the HARP loans purchased by Freddie Mac in 2012. The average weighted credit score of relief
refinances was 740 and was 762 for all other loans.
At December 31, 2012,
loans originated after 2008 accounted for 63
percent of the value of Freddie Mac's single-family credit guarantee
portfolio and HARP loans
represented 11
percent of that portfolio.
Since the beginning of
2008, on an aggregate
basis, the company has recorded provision for
credit losses of $75.2
billion
associated with
single-family loans
and recorded an additional $3.9 billion in losses
on loans purchased from the company's PC trusts, net of recoveries. The majority of these
losses are
associated with loans
originated in
2005 through 2008 and this
vintage of loan is an increasingly smaller portion of the company's single-family
credit guarantee
portfolio. At December 31, 2012, loans
originated in
2005 through 2008 represented 24
percent of the company's
single-family credit guarantee
portfolio, based
on UPB, down
from 32 percent at
December 31, 2011.
The serious
delinquency rate in the company's single-family portfolio was 3.25 percent at
the end of the fourth quarter compared to 3.37 percent at the end of the third
quarter and 3.58 percent on December 31, 2011.
The Mortgage Bankers Association's National Delinquency Survey put the
U.S. average serious delinquency rate at the end of the fourth quarter at 6.78
percent.
The multifamily delinquency rate was down to 0.19 percent on December
31, 2012 compared to 0.27 percent on September 30 and 0.22 percent at the end
of December 2011. Freddie Mac said its
multifamily delinquency rate reflects the continued improvement in the overall multifamily market and remains low compared to other industry participants.
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