Bolstered by higher originations, Freddie Mac reported Tuesday that net income was $524 million for the first quarter, up from $227 million a quarter earlier.
But the financial results don't show the improvement in single-family business due to "accounting noise," said Donald Layton, chief executive of Freddie.
The government-sponsored enterprise purchased $80 billion in single-family loans in the first quarter and reported $60 million in earnings from its single-family business. That was a far cry from its $470 million in earnings on such loans in the fourth quarter of last year, when it purchased $71 billion worth of such loans.
Freddie said it earned $284 million from its multifamily sector after purchasing $10 billion in multifamily loans during the quarter ending March 31.
"We continue to be materially impacted by noise," Layton told reporters during a conference call.
He blamed the drop in income from single-family loans on generally accepted accounting principles, which he said do "not reflect the underlying economics of our business in any single quarter or year."
Freddie executives pointed to several transactions where accounting issue impacted the results.
"If you back those out, the [single family] segment was flat," according to James Mackey, Freddie's chief financial officer. "Accounting noise hit the single-family business particularly hard."
He noted that accounting impacted the results of Freddie's Structured Agency Credit Risk transactions. Freddie completed $1.7 billion in STACR transitions in the first quarter, which transfers credit risk on single-family loans to private investors.
"Over time, there will be less volatility," on the STACR deals, Mackey said, because Freddie is moving to a new structure where investors share the credit risk on actual losses as opposed to losses on a related reference pool.
Mackey also said that the transfer of nonperforming loans from held-for- investment to held-for-sale also affected returns. Freddie sold $300 million in nonperfoming loans in the first quarter and expects to close on another $300 million sale in the second quarter.
"There is timing noise when we move nonperform loans from held-for-investment to held-for-sale," Mackey said. "The true economics on those trades are very positive from a capital prospective. Over time it is accretive to earnings and capital."
Freddie continues to operate in conservatorship and it will pay a $746 million dividend to the Treasury Department in June.
