Freddie Mac's net income grows exponentially in second quarter

Freddie Mac realized $1.78 billion in net income during the second quarter, up tenfold from $173 million in the first quarter and an edge up from $1.51 billion the year prior. The government-sponsored enterprise's comprehensive income similarly improved, generating $1.94 billion, which is triple the first quarter's $622 million and an improvement from $1.83 billion year-over-year.

Lower post-tax credit expenses and higher quoted spreads of its multifamily business helped that jump in comprehensive income. Those expenses totaled about $300 million compared to $900 million in the first quarter. As of the end of June, credit risk transfer transactions accounted for 44% of Freddie's single-family guarantee portfolio.

Freddie kept its pipeline of liquidity to lenders flowing by purchasing coronavirus-related forbearance loans.

"We fulfilled our mission and are playing the countercyclical role GSEs are called on to play in times of crisis," CEO David Brickman said on the earnings call. "While much uncertainty remains, particularly as significant portions of the CARES Act expired, the overall trend in forbearances has been down since their peak in late May. The hard work we have done to support liquidity, stability and affordability in the market, while blunting the worst effects of the coronavirus have not distracted us from our top strategic priority: responsibly exiting conservatorship."

Freddie's total equity grew to $11.4 billion in the second quarter from $9.5 billion in the first quarter, driven by new single-family and multifamily business activity. Single-family volume rose 7% annually to $232 billion — its second-highest level ever only trailing the second quarter of 2003 — and multifamily jumped 13% to $20 billion. Building up this figure gets the GSE closer to exiting conservatorship.

While potential further pandemic shutdowns bring instability to the economy and turns forecasts into a fool's errand, the housing market displays strength.

"Data suggests that the dramatic economic contraction bottomed-out in mid-April and the economy appears to be slowly improving," Brickman said.

"Despite the slow recovery, the housing market appears to be relatively healthy and recovered faster than the rest of the economy. In the single-family market, we've seen purchase applications rebound, likely triggered by the lowest average interest rates since Freddie Mac began tracking them in 1971. To give you an idea about how remarkable the recovery in home buying has been, it took 10 years for purchase demand to fully recover from the Great Recession. In this crisis, it did so in 10 weeks."