The last three years have been extremely trying on Freddie Mac's finances, but things could finally turn around for the GSE in the next year or so.
Freddie Mac ate its latest serving of humble pie late last week when it reported yet another year of losses and made an additional request for funds from the U.S. Treasury, but it also dampened the news with some of its most promising earnings since being placed under receivership in 2008 and a survey of its loan portfolio that points to future growth.
For 2011, Freddie’s net loss was $5.3 billion, but its net fourth quarter income was $619 million, and coupled with other comprehensive income of $887 million, its total payload was a hefty $1.5 billion. Still, that income was offset by dividends of $1.7 billion, so the GSE still had to request $146 million in funds from the Treasury.
In comments complementing Freddie’s financial report, CEO Charles E. Haldeman, Jr., instead focused on his company’s continued importance in housing, rather than its troubled finances.
“We continue to be a vital source of mortgage funding – last year alone we provided over $360 billion of liquidity to the market,” Haldeman said. “This enabled nearly two million American families to buy or rent a home, including 1.2 million homeowners who were able to refinance their mortgages and save approximately $2,300 in annual interest payments. We also helped to stabilize communities across the country by assisting more than 208,000 borrowers to avoid foreclosure and selling more than two-thirds of our REO properties to owner-occupants.”
Freddie’s handling of its REO inventory was another bright spot for 2011. For the year, it acquired 98,631 REO properties (down from 128,238 in 2010) and sold 110,175, up from 101,206 in 2010. With those imbalances, Freddie reduced its REO inventory by 16 percent in 2011.
The other undeniable bright spot in Freddie’s report was its current batch of single-family loans, which are so sound and secure that they have Freddie predicting long-term improvements to the housing sector.
As of Dec. 31, 2011, 32 percent of Freddie’s loans were originated between 2005 and 2008, and those mortgages accounted for not only 90 percent of the firm’s credit losses in 2011, but the lion share of the $73.2 billion in credit losses since 2008. Freddie’s post-2008 loans, though, now make up more than half of its portfolio, and those loans are performing far beyond the previously mentioned group of loans. Making up only 1 percent of 2011 losses, the serious delinquency rate for the newer loans is just 0.30 percent, far below the 8.75 percent of the housing boom loans.
Freddie’s report predicted good things for its credit margins as those newer loans gradually comprise a greater share of its portfolio.
“The company currently expects that, over time, the replacement … of the 2005 to 2008 vintages, which have a higher composition of loans with higher risk characteristics, should positively impact the credit results of its single-family credit guarantee portfolio,” Freddie stated.