The mortgage giant generated a $2.5 billion profit and grew its mortgage portfolio by 14 percent despite dramatic declines in new purchase loans and refinancing.

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Mortgage giant Freddie Mac generated more than $2 billion in profits and continued to grow its mortgage portfolio and net worth during the second quarter, despite a dramatic decline in the amount of financing it was able to provide for refinancing and purchase mortgages.

Freddie Mac provided funding for 468,000 single-family mortgages totaling $138 billion during April, May and June, a 33 percent drop in terms of dollar volume from the first quarter and a 52 percent decline from a year ago. That’s in line with industry trends as rising mortgage rates crimp demand for both refinancing and purchase mortgages.

Freddie Mac single-family mortgage funding drops 52%

Funding provided by Freddie Mac for single-family mortgages (homes with one to four units) by quarter. Source: Freddie Mac regulatory filing

Funding provided by Freddie Mac for purchase mortgages was down 12 percent from a year ago to $86 billion while refinancing volume was down 73 percent to $52 billion, the company said Thursday in reporting second-quarter earnings.

But the mortgage giant also provided financing for 149,000 rental units, up 3 percent from the first quarter and 9 percent from a year ago.

Michael DeVito

“In a quarter that saw sluggish home sales and refinancings, we provided approximately $153 billion of liquidity to support borrowers and renters,” Freddie Mac CEO Michael DeVito said on a call with investment analysts. “Overall, we helped 617,000 families buy, refinance or rent a home. Loans to first-time homebuyers made up nearly half of all our owner occupied purchases, financed by Freddie Mac. Additionally, 61 percent of all loans we financed were affordable to low to moderate income families.”

While Freddie Mac’s revenue was down 8 percent from a year ago to $5.4 billion, net income (profit) fell more dramatically, dropping 33 percent from a year ago to $2.5 billion.

That’s mostly because at this time last year Freddie Mac was able to reduce its provision for credit losses by $700 million, as home price appreciation and improving economic conditions allowed the company to take a more optimistic view of future loan losses.

During the second quarter of this year, the mortgage giant increased its provision for credit losses by $300 million.

At 0.76 percent, the serious delinquency rate for loans in Freddie Mac’s loan portfolio as of June 30 was down from 0.92 percent on March 31 and 1.86 percent a year ago. But Freddie Mac said it boosted its provision for credit losses due to deterioration in forecasted economic conditions and because of the simple fact that its mortgage portfolio continues to grow.

Freddie Mac’s mortgage portfolio approaching $3 trillion

Freddie Mac’s single-family (homes with one to four units) mortgage portfolio in trillions of dollars Source: Freddie Mac regulatory filing.

Freddie Mac’s single-family mortgage portfolio has grown by 14 percent in the last year, to $2.93 trillion. That’s thanks largely to a dramatic runup in home prices, meaning Freddie Mac is acquiring much bigger loans than the older loans that “run off” the portfolio when homeowners pay off their loans.

“Our work has taken on greater complexity and importance in the current economic environment,” DeVito said. “Higher mortgage rates, continued house price appreciation, and persistent lack of supply are slowing the housing market and challenging affordability for many families.”

DeVito noted that annual home price appreciation exceeded 17 percent last year and is expected to average nearly 13 percent in 2022.

“Much of this is being driven by a shortage of homes — we estimate the deficit to be in the millions,” DeVito said. “We continue to observe the rising cost of rent at a time when families are challenged by inflation more broadly. These challenges often fall disproportionately on underserved populations. That is why it is so important that we work across the industry to help increase sustainable homeownership, improve rental affordability and promote equity.”

To help address the deficit of homes, in June Freddie Mac expanded its eligibility requirements for mortgages secured by properties with accessory dwelling units (ADUs) attached to single-family properties.

“From in-law suites and garage-top apartments to guest cottages, they offer borrowers rental income to help offset the cost of homeownership while increasing density in highly desirable neighborhoods,” DeVito said.

To help more renters make the leap to homeownership, Freddie Mac now considers on-time rent payments when qualifying loan applicants.

Freddie Mac has also expanded the curriculum available through its CreditSmart program, which offers free educational resources and tools to help would-be homebuyers manage their money and build good credit.

Freddie Mac’s growing net worth

Freddie Mac’s new worth by quarter Source: Freddie Mac quarterly report

With the company continuing to generate billions in profits, Freddie Mac’s net worth hit $34.1 billion at the end of the quarter, up 8 percent from the previous quarter and 52 percent from a year ago.

As Freddie Mac’s net worth increases, it’s amassing capital that could eventually allow it and its sister company, Fannie Mae, to be released from government conservatorship, although there’s no consensus among lawmakers on exactly how to do so.

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Email Matt Carter

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