Freddie Mac Profits Put Taxpayers $91.8 Billion in the Black

Freddie Mac said today that full-year net income andrncomprehensive income, $7.7 billion and 9.4 billion respectively, made 2014 therncompany’s third straight year of profitability. rnThe financial results were driven primarily by:</p<ul class="unIndentedList"<liNet interest income of $14.3 billion</li<liSettlement income of $6.1 billionrnrelated to private-label securities litigation</li<liDerivative losses of $8.3 billionrndriven mostly by declining interest rates</li</ul

Net and comprehensive income results werernsubstantially below the numbers booked in 2013 of $48.7 billion and $51.6 billionrnrespectively, totals that included an income tax benefitrnof $23.3 billion that primarilyrnresulted from the release of the deferred tax asset valuation allowance in thernthird quarter of   2013.rnThe decreases in 2014 net income and comprehensive income were further driven by:</p<ul class="unIndentedList"<lia shift from derivative gains of $2.6rnbillion in 2013 to derivative losses of $8.3 billion in 2014 primarily due to declining long-termrninterest rates in 2014;</li<lia shift from a benefit for credit lossesrnof $2.5 billion in 2013 to a provision for credit losses of $0.1 billion in 2014 mainly because of lowerrnhome-price growth and smaller recoveries from representation and warranty settlements in 2014; and</li<liarndecrease in net interest income of $2.2 billion because of a continued declinernin the company's mortgage-relatedrninvestments portfolio.</li</ul

In the fourth quarter net income was $0.3 billionrncompared to $2.1 billion in the previous three months and comprehensive incomerndeclined from $2.8 billion to $0.3 billion. rnFreddie Mac said the quarter-over-quarter declines were driven by:</p<ul class="unIndentedList"<lian increase in derivative losses of $2.8rnbillion due to declining long-term interest rates and flattening of the yield curve;</li<lia decrease in settlement income of $1.2rnbillion as there were no private-label securities (PLS) litigation settlements in the fourth quarter of 2014;</li<lia decrease in total other comprehensivernincome of $0.7 billion mostly due to lower fair value gains on non-agency available-for-sale (AFS)rnsecurities; partially offset by</li<lia shift from income tax expense of $1.0rnbillion in the third quarter of 2014 to an income tax benefit of $0.1 billion in the fourth quarter of 2014.</li</ul

“2014rnmarked another year of solid financial and operating performance for FreddiernMac, enabling us to return an additionalrn$20 billion to the nation’s taxpayers,” said Donald H. Layton, chief executivernofficer. “We made tremendousrnprogress in materially reducing taxpayer exposure to risk, increasing marketrnshare between the GSEs throughrnimproved customer focus and service, and making our operations better throughrninnovation and efficiency. At thernsame time, working with FHFA we helped to further strengthen the housing financernsystem in America.”</p

Underrnits agreement with the U.S. Treasury Freddie Mac will pay a dividend to Treasuryrnof $0.9 billion for its fourth quarter obligation.  This will bring total cumulative cashrndividends paid to Treasury to $91.8rnbillion. The liquidation preference of the senior preferred stock held byrnTreasury remains $72.3 billion at Decemberrn31, 2014, as dividend payments do not offset prior Treasury draws.</p

FreddiernMac said its single family business segment earned $1.5 billion for the yearrnand $0.5 billion for the fourth quarter. rnIts post-2008 book of business now stands at 60 percent of itsrnsingle-family credit guarantee portfolio with HARP and other relief loansrnrepresenting an additional 20 percent. rnIts 2005-2008 legacy book now represents 13 percent of the portfolio. </p

Thernsingle family serious delinquency rate was 1.88 percent on December 31, 2014rncompared to 2.39 percent a year earlier. rnThis was substantially below the overall industry rate.</p

Therncompany’s investments segment had a comprehensive income of $6.5 billion for the entire year and arn$0.5 billion loss in the fourth quarter. rnThe company’s mortgage-relatedrninvestments portfolio was $408.4 billion at year end,  a decline of $52.6rnbillion from December 31, 2013, and remained below the December 31, 2014 Purchase Agreement limit of $470 billion.</p

ThernMultifamily segment had comprehensive income of $1.5 billion and $0.3 billionrnfor the full-year and fourthrnquarter of 2014, respectively.  New purchase volume remained strong at $28.3rnbillion in 2014. A majority of the credit risk on these new multifamily mortgages is transferred to the privaternmarket through K-deal offerings.</p

The company providedrnfinancing for over 413,000 rental units in 2014, 90 percent of which arernaffordable to families earning lowrnto moderate incomes.  It also introduced a new Small Balance Loanrnoffering to provide seller/servicers a dedicated platform to originate and sell loans for smallerrnrental properties.

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