Earnings call transcript: Freddie Mac Q2 2025 sees mixed financial results

Freddie Mac’s latest earnings call for the second quarter of 2025 revealed a mixed bag of financial performance. The company, with a market capitalization of $21.2 billion, reported a 14% decrease in net income year-over-year, while net interest income rose by 8%. The stock price reacted negatively, closing at $6.76, a 3.85% decline, reflecting investor concerns over the earnings decline and increased credit loss provisions. According to InvestingPro data, this decline comes despite an impressive year-to-date return of 107.01%.

Key Takeaways

• Net income decreased by 14% year-over-year.
• Net interest income increased by 8%.
• The stock price fell by 3.85% following the earnings announcement.
• The total mortgage portfolio grew by 2%.

Company Performance

Freddie Mac reported a net income of $2.4 billion for the second quarter, marking a 14% decrease compared to the previous year. This decline was partially offset by an 8% increase in net interest income, which reached $5.3 billion. The company’s total mortgage portfolio expanded by 2%, reaching a substantial $3.6 trillion. Despite these gains, the increased provision for credit losses and a decline in noninterest income posed challenges. InvestingPro analysis reveals the company maintains a strong financial position with a current ratio of 135.23, indicating robust liquidity management. Subscribers can access 12 additional ProTips and comprehensive financial metrics for deeper insights.

Financial Highlights

• Net income: $2.4 billion (14% decrease YoY)
• Net worth: $65 billion (22% increase YoY)
• Total mortgage portfolio: $3.6 trillion (2% increase YoY)
• Net interest income: $5.3 billion (8% increase)
• Noninterest income: $617 million (42% decline)
• Provision for credit losses: $783 million (increased from $394 million)

Market Reaction

Freddie Mac’s stock price declined by 3.85% to $6.76 following the earnings announcement. This decline reflects investor concerns over the company’s decreased net income and increased provisions for credit losses. The stock’s performance is within its 52-week range of $0.94 to $8.90, but the decline suggests a cautious market sentiment. InvestingPro analysis indicates the stock is currently trading above its Fair Value, with a beta of 2.01 suggesting higher volatility compared to the market. For a detailed valuation analysis and more insights, check out the Pro Research Report, available for over 1,400 US stocks.

Outlook & Guidance

Freddie Mac continues to focus on making housing more accessible and aims to strengthen the U.S. housing finance system. The company is working on lowering expenses and increasing revenue, although it remains cautious about house price appreciation.

Executive Commentary

Jim Whitlinger, Freddie Mac’s CFO, emphasized the company’s commitment to aiding American families, stating, "We helped more than 360,000 American families in the second quarter alone." He also noted, "These actions ultimately will result in an even safer and stronger Freddie Mac and a better US housing finance system."

Risks and Challenges

• Declining net income poses a risk to profitability.
• Increased provision for credit losses may impact financial stability.
• The decline in noninterest income could affect overall revenue.
• Potential macroeconomic pressures from fluctuating mortgage rates.
• Cautious outlook on house price appreciation may impact future growth.

The earnings call provided a detailed look at Freddie Mac’s financial health and strategic direction, highlighting both achievements and areas of concern.

Full transcript - Federal Home Loan Mortgage Corp (FMCC) Q2 2025:

Jeff Markowitz, Senior Vice President and Chief External Affairs Officer, Freddie Mac: Good morning, and thank you for joining us for a presentation of Freddie Mac’s Second Quarter twenty twenty five Financial Results. I’m Jeff Markowitz, Senior Vice President and Chief External Affairs Officer. We’re joined today by Executive Vice President and Chief Financial Officer, Jim Whitlinger. Before we begin, we’d like to point out that during the call, Mr. Wittlinger may make forward looking statements based on assumptions about the company’s key business drivers and other factors.

Changes in these factors could cause the company’s actual results to materially vary from its expectations. A description of those factors can be found in the company’s quarterly report on Form 10 Q filed today. You’ll find the 10 Q, earnings press release and related materials posted on the Investor Relations section of freddiemac.com. This call is recorded and a replay will soon be available on freddiemac.com. We ask that the call not be rebroadcast or transcribed.

With that, I’ll turn the call over to Freddie Mac’s CFO, Jim Whitlinger.

Jim Whitlinger, Executive Vice President and Chief Financial Officer, Freddie Mac: Good morning, and thank you for joining our call to review Freddie Mac’s second quarter performance. We’ll begin with the bottom line. Second quarter net income of $2,400,000,000 drove our company’s net worth to $65,000,000,000 at quarter end. The total mortgage portfolio at end of second quarter stands at $3,600,000,000,000 and we provided more than $100,000,000,000 of liquidity to The U. S.

Housing finance system. Those dollars helped make home possible for more than 360,000 American families in the second quarter alone. Many of those families qualified for a mortgage for the first time. In fact, of the 206,000 homebuyers we helped in the quarter, more than 100,000 purchased their very first home. And most of the houses and apartments we helped finance were within reach for middle class families.

53% of the single family homes and 95% of eligible rental units we financed were affordable to low and moderate income households. Now let’s look at the details of our quarterly financial performance. As I mentioned earlier, we earned net income of $2,400,000,000 this quarter, a decrease of $378,000,000 or 14% year over year. This decrease was primarily driven by higher provision for credit losses in both of our business segments. The higher provision taken this quarter was due to modeled and observed house price declines and lower forecasted house price appreciation.

Second quarter net interest income was $5,300,000,000 up $371,000,000 or 8% year over year. This increase was driven by continued growth in the mortgage portfolio, which grew 2% year over year and lower funding costs, partially offset by lower yields on short term investments. Our noninterest income of $617,000,000 for the second quarter declined $443,000,000 or 42% from the prior year quarter. This was primarily due to lower investment gains in our multifamily business. As noted, our provision for credit losses increased this quarter to $783,000,000 The provision for credit losses was $394,000,000 in the prior year quarter, mainly attributable to new acquisitions in the single family business.

Our total mortgage portfolio at the end of the quarter was $3,600,000,000,000 a 2% increase year over year. Turning to our individual business segments, the single family business reported net income of $2,100,000,000 for the quarter, down $192,000,000 or 8% year over year. Single family net revenues of $5,100,000,000 increased slightly by $41,000,000 or 1% from the prior year quarter. This increase was primarily driven by a $263,000,000 or 6% increase in net interest income. Net interest income benefited from continued growth in our single family mortgage portfolio and lower funding costs, partially offset by lower yields on short term investments.

Noninterest income of $237,000,000 declined by $222,000,000 or 48% from the prior year quarter. This decline was primarily driven by impacts from interest rate risk management activities. Our provision for single family credit losses was an expense of $622,000,000 this quarter, primarily due to a credit reserve build driven by modeled and observed house price declines, lower forecasted house price appreciation and provision on new originations under CECL recognition as we continue to grow our single family portfolio. The provision in the prior year quarter was an expense of $315,000,000 which was primarily attributable to new acquisitions in the quarter. Our modeled observed house prices declined 0.6% this quarter.

Our current house price forecast assumes an increase of 1.3% over the next twelve months and 0.4% over the subsequent twelve months. This is a change from our forecast at the end of last quarter, which assumed 4.2% growth over the next twelve months and 2.8% growth over the subsequent twelve months. The single family allowance for credit losses at the end of the quarter was $7,500,000,000 This translated to an allowance for credit losses coverage ratio of 23 basis points, up from 21 basis points at the end of the year 2024 and as of the prior quarter. The single family serious delinquency rate declined four basis points quarter over quarter from 59 to 55 basis points. Year over year, the delinquency rate increased five basis points from 50 to 55 basis points.

This was primarily driven by a higher serious delinquency rate for loans originated during 2022 and later, as well as lingering impacts from hurricanes that occurred in late twenty twenty four. In the second quarter, we helped approximately 24,000 families remain in their homes through loan workouts. Our single family mortgage portfolio at the end of the quarter was $3,100,000,000,000 up two percent year over year. Credit characteristics of our single family portfolio continue to remain strong, with the weighted average current loan to value ratio at 53% and the weighted average current credit score at 754. At the end of the quarter, 62% of our single family portfolio had some form of credit enhancement.

New business activity totaled $94,000,000,000 this quarter, up $16,000,000,000 from the first quarter of this year. First time homebuyers represented 53% of our new single family home purchase loans. Higher mortgage rates continue to impact both purchase and refinance activity. Refinance activity accounted for a little over 19% of our total new business activity this quarter. For new acquisitions, our weighted average original loan to value was 77% and weighted average credit score was 759.

The average estimated guarantee fee charged on new business was 54 basis points. The thirty year mortgage rate peaked at 6.89% during the quarter and ended the quarter at 6.77%. That was up from 6.65% at the end of the first quarter and slightly down from 6.86% at the end of the prior year quarter. Moving on to Multifamily, the segment reported net income of $295,000,000 That was down $186,000,000 or 39% from the prior year quarter. This decrease was primarily driven by lower non interest income, which declined 37% or $221,000,000 year over year.

The decrease in non interest income was primarily driven by lower revenues from held for sale loan purchase and securitization activities as well as impacts from interest rate risk management activities. The decline in noninterest income was partially offset by net interest income of $4.00 $1,000,000 which was up $108,000,000 or 37% year over year. The increase in net interest income was primarily driven by a change in the company’s multifamily business strategy that resulted in an increase in the volume of fully guaranteed securitizations. The multifamily provision for credit losses was an expense of $161,000,000 this quarter versus $79,000,000 in the prior year quarter. The provision for credit losses this quarter was primarily driven by a credit reserve build attributable to new loan purchase commitment and acquisition activity, coupled with deterioration in the credit performance of certain delinquent loans.

Our multifamily new business activity was $12,000,000,000 for the second quarter, up 2,000,000,000 from the last quarter. The business provided financing for 99,000 multifamily rental units this quarter with 74% of eligible units affordable to low income families. The multifamily mortgage portfolio increased 4% year over year to $466,000,000,000 92% of the multifamily mortgage portfolio was covered by credit enhancements at the end of the quarter. The multifamily delinquency rate at the end of the quarter was 47 basis points, up nine basis points from the June 2024. This increase was primarily driven by delinquency in our floating rate loans and small balance loans.

97% of these delinquent loans had credit enhancement coverage. On the capital front, our net worth increased to $65,000,000,000 at the end of the quarter, representing a 22% increase year over year. I’ll conclude by noting that our efforts to reduce costs for Freddie Mac, lenders, borrowers and renters is ongoing. As I discussed last quarter, the actions of the Director of U. S.

Federal Housing, Bill Pulte, are enabling further transformation of the business, making us more efficient and effective. We’re working closely with U. S. Federal Housing to lower expenses, increase revenue and improve productivity wherever we can. For example, we are working together to increase competition among the credit scoring agencies.

These actions ultimately will result in an even safer and stronger Freddie Mac and a better US housing finance system. That is our mission. Thank you for joining us today.

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