ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
Federally chartered corporation | 8200 Jones Branch Drive | 52-0904874 | (703) 903-2000 | |||
(State or other jurisdiction of incorporation or organization) | McLean, Virginia 22102-3110 | (I.R.S. Employer Identification No.) | (Registrant’s telephone number, including area code) | |||
(Address of principal executive offices, including zip code) |
Large accelerated filer ý | Accelerated filer ¨ | ||||
Non-accelerated filer (Do not check if a smaller reporting company) ¨ | Smaller reporting company ¨ |
Page | |
PART I — FINANCIAL INFORMATION | |
Item 1. Financial Statements | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Executive Summary | |
Selected Financial Data | |
Consolidated Results of Operations | |
Consolidated Balance Sheets Analysis | |
Risk Management | |
Liquidity and Capital Resources | |
Fair Value Hierarchy and Valuations | |
Off-Balance Sheet Arrangements | |
Critical Accounting Policies and Estimates | |
Forward-Looking Statements | |
Legislative and Regulatory Matters | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. Controls and Procedures | |
PART II — OTHER INFORMATION | |
Item 1. Legal Proceedings | |
Item 1A. Risk Factors | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 6. Exhibits | |
SIGNATURES | |
GLOSSARY | |
EXHIBIT INDEX |
i | Freddie Mac Form 10-Q |
Table | Description | Page | |
1 | Total Single-Family Mortgage Loan Workout Volumes | ||
2 | Mortgage-Related Investments Portfolio | ||
3 | Selected Financial Data | ||
4 | Summary Consolidated Statements of Comprehensive Income | ||
5 | Net Interest Income/Yield and Average Balance Analysis | ||
6 | Single-Family Impaired Mortgage Loans with Specific Reserve Recorded | ||
7 | TDRs and Non-Accrual Mortgage Loans | ||
8 | Credit Loss Performance | ||
9 | Severity Ratios for Single-Family Mortgage Loans | ||
10 | Derivative Gains (Losses) | ||
11 | Other Gains (Losses) on Investment Securities Recognized in Earnings | ||
12 | Other Income (Loss) | ||
13 | Non-Interest Expense | ||
14 | Components of Other Comprehensive Income (Loss) | ||
15 | Composition of Segment Mortgage Portfolios and Credit Risk Portfolios | ||
16 | Segment Earnings and Key Metrics — Single-Family Guarantee | ||
17 | Segment Earnings and Key Metrics — Investments | ||
18 | Segment Earnings and Key Metrics — Multifamily | ||
19 | Investments in Securities on Our Consolidated Balance Sheets | ||
20 | Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets | ||
21 | Additional Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets | ||
22 | Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, and Alt-A Loans and Certain Related Credit Statistics | ||
23 | Mortgage Loan Purchases and Other Guarantee Commitment Issuances | ||
24 | Freddie Mac Mortgage-Related Securities | ||
25 | Issuances and Extinguishments of Debt Securities of Consolidated Trusts | ||
26 | Changes in Total Equity | ||
27 | Characteristics of Purchases for the Single-Family Credit Guarantee Portfolio | ||
28 | STACR Debt Note and ACIS Transactions | ||
29 | Characteristics of the Single-Family Credit Guarantee Portfolio | ||
30 | Single-Family Credit Guarantee Portfolio Data by Year of Origination | ||
31 | Single-Family Serious Delinquency Rate Trend | ||
32 | Single-Family Serious Delinquency Statistics | ||
33 | Certain Higher-Risk Categories in the Single-Family Credit Guarantee Portfolio | ||
34 | Single-Family Mortgage Loans with Scheduled Payment Changes by Year at September 30, 2015 | ||
35 | Credit Concentrations in the Single-Family Credit Guarantee Portfolio | ||
36 | Single-Family Credit Guarantee Portfolio by Attribute Combinations | ||
37 | Single-Family Relief Refinance Mortgage Loans | ||
38 | Single-Family Mortgage Loan Workout, Serious Delinquency, and Foreclosure Volumes | ||
39 | Quarterly Percentages of Modified Single-Family Mortgage Loans — Current or Paid Off | ||
40 | Foreclosure Timelines for Single-Family Mortgage Loans | ||
41 | Multifamily Mortgage Portfolio — by Attribute | ||
42 | Mortgage Insurance by Counterparty | ||
43 | Derivative Counterparty Credit Exposure | ||
44 | Activity in Other Debt | ||
45 | Freddie Mac Credit Ratings | ||
46 | Affordable Housing Goals and Results for 2014 |
ii | Freddie Mac Form 10-Q |
iii | Freddie Mac Form 10-Q |
Page | |
Condensed Consolidated Statements of Comprehensive Income | |
Condensed Consolidated Balance Sheets | |
Condensed Consolidated Statements of Cash Flows | |
Note 1: Summary of Significant Accounting Policies | |
Note 2: Conservatorship and Related Matters | |
Note 3: Variable Interest Entities | |
Note 4: Mortgage Loans and Loan Loss Reserves | |
Note 5: Impaired Mortgage Loans | |
Note 6: Real Estate Owned | |
Note 7: Investments in Securities | |
Note 8: Debt Securities and Subordinated Borrowings | |
Note 9: Derivatives | |
Note 10: Collateral and Offsetting of Assets and Liabilities | |
Note 11: Stockholders’ Equity | |
Note 12: Income Taxes | |
Note 13: Segment Reporting | |
Note 14: Financial Guarantees | |
Note 15: Concentration of Credit and Other Risks | |
Note 16: Fair Value Disclosures | |
Note 17: Legal Contingencies | |
Note 18: Regulatory Capital | |
Note 19: Selected Financial Statement Line Items |
iv | Freddie Mac Form 10-Q |
1 | Freddie Mac Form 10-Q |
• | Interest-Rate Volatility — We hold assets and liabilities that expose us to interest-rate risk. Through our use of derivatives, we manage our exposure to interest-rate risk on an economic basis to a low level as measured by our models. However, the way we account for our financial assets and liabilities, including derivatives (i.e., some are measured at amortized cost, while others are measured at fair value), creates volatility in our earnings when interest rates fluctuate. This volatility is not indicative of the underlying economics of our business. |
• | Spread Volatility — Spread volatility (i.e., credit spreads, liquidity spreads, risk premiums, etc.), or option-adjusted spreads, is the risk associated with changes in interest rates in excess of benchmark rates. We hold assets and liabilities that expose us to spread volatility. However, we have limited ability to manage spread volatility. Changes in spreads may contribute to significant earnings volatility period to period. |
• | Non-Recurring Events — From time to time, we have experienced and will likely continue to experience significant earnings volatility from non-recurring events related to the financial crisis, including settlements with counterparties and changes in certain valuation allowances (i.e., allowance for loan losses and deferred tax asset). |
• | to support U.S. homeowning and renting families by maintaining mortgage availability even when other sources of financing are scarce and providing struggling homeowners with alternatives that allow them to stay in their homes or to avoid foreclosure; |
• | to reduce taxpayer exposure to losses by increasing the role of private capital in the mortgage market and reducing our overall risk profile; |
• | to build a commercially strong and efficient business enterprise to succeed in a to-be-determined “future state”; and |
• | to support and improve the secondary mortgage market. |
2 | Freddie Mac Form 10-Q |
(1) | Excludes modification, repayment, and forbearance activities that have not been made effective, such as mortgage loans in modification trial periods. As of September 30, 2015, more than 23,000 borrowers were in modification trial periods. These categories are not mutually exclusive and a mortgage loan in one category may also be included in another category in the same period. |
• | We participated with FHFA and Fannie Mae in open forum meetings in several cities to inform community leaders about HARP eligibility criteria and benefits. |
• | In June 2015, we announced that we are extending our streamlined modification program indefinitely. In September 2015, we announced changes designed to expand the pool of borrowers eligible to participate in our modification programs. |
3 | Freddie Mac Form 10-Q |
• | We also continued to work with FHFA and Fannie Mae to develop and execute neighborhood stabilization plans in certain cities. In these cities we continue to work with locally-based private entities to facilitate REO dispositions and provide an initial period for REO properties to be purchased by owner occupants and others before we consider offers from investors. |
• | transferring to private investors, insurers and selected sellers part of the credit risk of our New single-family book and our total multifamily portfolio; |
• | managing the performance of our servicers through our contracts with them; |
• | selling non-performing single-family mortgage loans; |
• | improving our returns on property dispositions; |
• | pursuing our rights against mortgage insurers; |
• | recovering losses on non-agency mortgage-related securities; and |
• | reducing our mortgage-related investments portfolio over time. |
4 | Freddie Mac Form 10-Q |
• | Better serving our customers: We continue to enhance our processes and programs to improve our customers' experience when doing business with us. This includes providing seller/servicers with greater certainty that the mortgage loans they sell to us or service for us meet our requirements. We continue to improve the tools we make available to our customers, including expanding and leveraging the data standards of the Uniform Mortgage Data Program. In 2015, we launched Loan Coverage Advisor, a new tool that allows our sellers to track significant events for the mortgage loans they sell us, including the dates when the seller obtains relief from certain representations and warranties. Additionally, effective June 1, 2015, we no longer charge a fee to use our Loan Prospector automated underwriting tool. Improvements in our latest customer satisfaction surveys show that our efforts are being recognized by our sellers and servicers. In October 2015, at the direction of FHFA, we and Fannie Mae released a uniform framework for representations and warranties remedies. The enhanced framework is intended to provide more clarity and transparency to lenders who do business with Freddie Mac on the process followed in categorizing origination defects, seller corrections of such defects, and available remedies. Also in October 2015, we announced Loan Advisor Suite, which is a set of integrated software applications designed to give lenders a way to originate and deliver high quality mortgage loans to us and to acquire insight into representation and warranty relief earlier in the mortgage loan production process. |
• | Providing market leadership and innovation: We continue to develop innovative programs and services that benefit the mortgage industry and better meet the needs of an evolving mortgage market. We accomplish this primarily by: (a) continuing to execute our credit risk transfer transactions, including transactions that provide coverage based on actual losses as well as first losses realized on reference pools of single-family mortgage loans and seeking to expand and refine these offerings in the future; (b) expanding access to credit for credit-worthy borrowers, such as through the initiative we announced in December 2014 for loans with LTV ratios up to 97%; and (c) continuing to work with FHFA and Fannie Mae on enhancing the secondary mortgage loan market, including through the development of a new common securitization platform and a single (common) security. In July 2015, we began offering two new types of credit risk transfer transactions, including a whole loan security, which uses a senior/subordinated security structure |
5 | Freddie Mac Form 10-Q |
• | Maintaining sound underwriting practices: We manage our credit risk by setting our underwriting standards at a level commensurate with the long-term credit risk appetite of the company. We believe the credit quality of the single-family mortgage loans in our New single-family book reflects sound underwriting standards as evidenced by their average original LTV ratios and credit scores as well as their credit performance in recent periods. |
• | Reducing our credit losses and addressing emerging credit risks: As part of our loss mitigation strategy, we sold certain seriously delinquent mortgage loans during the nine months ended September 30, 2015. In addition, our mortgage portfolio includes several mortgage loan products with terms that may result in scheduled increases in monthly payments after specified initial periods (e.g., HAMP mortgage loans). A significant number of these mortgage loans have experienced, or will experience, payment changes beginning in 2015, which could increase the risk that the borrowers will default. We introduced several initiatives in 2015 designed to help reduce the risk that borrowers will default on their HAMP mortgage loans. |
• | Optimizing the economics of our single-family business: We seek to achieve strong economic returns on our single-family credit guarantee portfolio while considering and balancing our: (a) housing mission and goals; (b) seller diversification and market share; and (c) security price performance (i.e., the disparities in the trading value of our PCs relative to comparable Fannie Mae securities in the market). However, economic returns on our guarantee activities are limited by, and subject to, FHFA's oversight. |
• | Broadening access to credit: We continue to explore the feasibility of: (a) increasing our purchases of mortgage loans securitized by manufactured housing; (b) improving the effectiveness of pre-purchase and early delinquency counseling for borrowers; (c) utilizing alternative credit score models and credit history standards in mortgage loan eligibility decisions; and (d) increasing support for first-time home buyers. We are responsibly expanding our programs and outreach capabilities to better serve low and moderate income borrowers and underserved markets. In October 2015, we announced a partnership with Quicken Loans to pilot several new initiatives aimed at helping provide more families with the opportunity to achieve homeownership. This program will feature unique co-developed products designed to meet the needs of emerging markets and will also include continued home buyer education. |
• | Reducing the balance of less liquid mortgage-related assets, specifically non-agency mortgage-related securities and single-family reperforming, performing modified and delinquent mortgage loans; |
• | Managing the corporate treasury function, including managing funding, interest-rate and liquidity risks, through the use of derivatives, our liquidity and contingency operating portfolio and unsecured debt; |
• | Continuing to maintain a presence and provide secondary market liquidity for our agency mortgage-related securities; and |
• | Continuing to manage our business based on economics, although we may forgo certain opportunities for a variety of reasons, including the mandated cap on the size of our mortgage-related investments portfolio or the potential accounting impacts. For more information on the mortgage-related investments portfolio cap, see "Limits on Our Mortgage-Related Investments Portfolio." |
• | Increasing our commitment to customers: We consider customer focus to be a key priority in our efforts to build value and support the creation of a strong, long-lasting rental housing system that positively affects the economy and communities nationwide. We look to increase efficiencies for our customers by standardizing and improving the ways in which they provide data to us in order to foster greater transparency and liquidity in the market. |
• | Providing a reliable flow of capital for workforce housing: In May 2015, FHFA expanded the affordable housing categories that are excluded from the volume limit in our 2015 Scorecard. These revisions will enable us to further support the needs of the affordable rental housing market across more communities. In addition, we are continuing to grow our presence in the small balance mortgage loan and manufactured housing community mortgage loan markets. |
• | Continuing to create innovative programs to transfer credit risk: We are developing and enhancing programs and offerings that support risk transfer activities. We are pursuing alternative methods to transfer credit risk of our multifamily mortgage portfolio using transactions other than our existing K Certificates to reduce exposure to mortgage credit risk for the company and U.S. taxpayers. |
• | Improving our risk-adjusted returns: By leveraging private capital in our K Certificate and other credit risk transfer transactions, we are able to reduce capital allocation costs, decrease our potential exposure to credit losses, and build a steady source of management and guarantee fee income while increasing overall returns. |
• | Improving our infrastructure: We are improving our information technology in a manner designed to address the evolving requirements of the company, the Conservator, and the mortgage industry. We have ongoing efforts to |
6 | Freddie Mac Form 10-Q |
• | Strengthening and streamlining our operations: We continue to strengthen and streamline our operations. We are improving our risk management capabilities by strengthening our three-lines-of-defense risk management framework. We are expanding our second-line-of-defense testing capabilities over our operational controls. We are also conducting a multi-year project focused on identifying and eliminating redundant control activities. In addition, we are conducting select organizational design reviews focused on reducing the number of operating layers within the organization. |
• | Build the Common Securitization Platform: We continue to work with FHFA, Fannie Mae, and Common Securitization Solutions, LLC (or CSS) on the development of a new common securitization platform. CSS is equally owned by us and Fannie Mae, and was formed to build and operate the platform. We and FHFA expect this will be a multi-year effort. On September 15, 2015, FHFA issued a report titled "An Update on the Common Securitization Platform," which provides an update on this project. The update indicates that Freddie Mac will be the first GSE to use the platform, with FHFA planning to announce in 2016 the date on which this will occur. |
• | Implement the Single Security Initiative: FHFA is seeking ways to improve the overall liquidity of mortgage-related securities issued by us and Fannie Mae. This includes working towards the development of a single (common) security, which is intended to reduce the disparities in trading value between our PCs and Fannie Mae's single-class mortgage-related securities. The proposed single (common) security would be issued and guaranteed by either Freddie Mac or Fannie Mae. One of the goals for the proposed single security is for Freddie Mac PCs and Fannie Mae mortgage-related securities to be fungible with the single security to facilitate trading in a single TBA market for these securities. We continue to work on a detailed implementation plan, and we expect that the implementation will be a multi-year effort. |
• | Improve seller and servicer eligibility standards: In the second quarter of 2015, at the direction of FHFA, we and Fannie Mae announced changes to our single-family seller and servicer eligibility requirements. These changes include revisions to net worth requirements, adoption of new capital and liquidity requirements and enhancements to certain servicer operational requirements. Our revised operational requirements took effect on August 18, 2015 and our revised financial requirements will take effect on December 31, 2015. |
• | Implement the Uniform Mortgage Data Program: We and Fannie Mae continue to collaborate with the industry to develop and implement uniform data standards for single-family mortgage loans. This involves support for the mortgage loan data standardization initiatives, including the Uniform Closing Dataset and the Uniform Loan Application Dataset. This will enable us and Fannie Mae to drive improved loan quality and improve risk management. |
• | Improve mortgage insurer eligibility standards: In the second quarter of 2015, at the direction of FHFA, we published revised eligibility requirements for mortgage insurers that include financial requirements determined using a risk-based framework. The revised eligibility requirements will become effective for all Freddie Mac-approved mortgage insurers on December 31, 2015. These revised eligibility requirements are designed to strengthen the mortgage insurance industry and enable a financially strong and resilient system that can provide consistent liquidity throughout the mortgage cycle. |
• | Improve the underwriting processes with our single-family sellers: We meet with selected sellers to review and discuss improvements in their underwriting process. We also continually seek improvements to our automated tools for use in evaluating the credit and product eligibility of mortgage loans and identifying non-compliance issues. |
• | The U.S. real gross domestic product rose by 1.5% on an annualized basis during the third quarter of 2015, compared to an annualized increase of 3.6% during the second quarter of 2015, according to the Bureau of Economic Analysis. |
• | The national unemployment rate continued its trend of improvement and was 5.1% in September 2015, compared to 5.6% in December 2014, based on data from the U.S. Bureau of Labor Statistics. |
• | An average of approximately 198,000 and 260,000 monthly net new jobs (non-farm) were added to the economy during the nine months ended September 30, 2015 and the full year of 2014, respectively. |
• | The average interest rate on new 30-year fixed-rate conforming mortgage loans was 4.0% during the third quarter of 2015 and 3.8% during the nine months ended September 30, 2015, compared to 3.8% during the second quarter of |
7 | Freddie Mac Form 10-Q |
• | As reported by the U.S. Census Bureau, the U.S. homeownership rate was 63.7% in the third quarter of 2015, which was 5.5% lower than the high point of 69.2% in the fourth quarter of 2004. |
• | Long-term interest rates, including the 10-year LIBOR, declined in 2015. The 10-year LIBOR declined 44 basis points and 28 basis points during the three and nine months ended September 30, 2015, respectively, while the 10-year LIBOR increased 5 basis points and 41 basis points during the three and nine months ended September 30, 2014, respectively. |
• | Sales of existing homes during the third quarter of 2015 were 5.48 million, increasing 3.4% from 5.30 million during the second quarter of 2015 (on a seasonally-adjusted annual basis), based on data from the National Association of Realtors. |
• | Sales of new homes during the third quarter of 2015 were approximately 500,000, increasing 0.6% from approximately 497,000 during the second quarter of 2015 (on a seasonally-adjusted annual basis), based on data from the U.S. Census Bureau and HUD. |
• | Total mortgage loan origination volume increased during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, as lower average long-term mortgage interest rates caused the volume of refinance activity to increase. |
• | There was continued home price appreciation during the three and nine months ended September 30, 2015. |
◦ | Home prices increased on a national basis by 0.8% during the third quarter of 2015 and 5.8% since September 2014 (based on our non-seasonally adjusted index), compared to a 0.4% increase during the third quarter of 2014 and a 4.9% increase from September 2013 to September 2014. These estimates were based on our own price index of one-family homes funded by mortgage loans owned or guaranteed by us or Fannie Mae. |
◦ | Declines in the market’s inventory of vacant housing have supported stabilization and increases in home prices in a number of metropolitan areas. |
◦ | National home prices at September 30, 2015 were approximately 5.8% below their peak levels in June 2006 (based on our index). |
• | The multifamily housing market is in its sixth straight year of growth. Based on data reported by Reis, Inc.: |
◦ | The national apartment vacancy rate was 4.3% at September 30, 2015 and remains low compared to the long-term average of 5.6% since 1980. |
◦ | Effective rents (i.e., the average rent paid by the tenant over the term of the lease adjusted for concessions by the landlord and costs borne by the tenant) grew by 4.3% on an annualized basis during the third quarter of 2015, more than 1% higher than the long-term average. The annual growth rate in effective rents has not been less than 3% since 2011. |
• | Market Conditions - Near-term performance of the single-family housing market is affected by key macroeconomic drivers of the economy, such as income growth, employment, and inflation. In the near term, we believe: |
◦ | Home price growth rates will continue to be consistent with long-term historical averages (approximately 2 to 5% per year). |
◦ | Mortgage loan interest rates will remain relatively low compared to historical levels, but begin trending slowly upward. |
◦ | Housing affordability for potential home buyers will remain relatively high in most metropolitan housing markets. |
◦ | The volume of home sales during 2015 will likely be slightly higher than during 2014. |
◦ | Relatively weak employment rates in certain areas and relatively modest family income growth are important factors that will continue to have a negative effect on single-family housing demand. |
• | Mortgage Loan Volumes |
8 | Freddie Mac Form 10-Q |
◦ | Our mortgage loan purchase activity during the nine months ended September 30, 2015 increased to $274.9 billion in UPB, compared to $184.3 billion in UPB during the nine months ended September 30, 2014. We expect that the volume of refinance mortgage loans as a percentage of total originations will be lower during the fourth quarter of 2015 compared to the same period of 2014. |
◦ | Refinance mortgage loans comprised approximately 58% of our single-family mortgage loan volume during the nine months ended September 30, 2015, compared to 46% during the nine months ended September 30, 2014. |
◦ | The volume of our HARP mortgage loan purchases will likely remain low during the fourth quarter of 2015 since the pool of borrowers eligible to participate in the program has declined. |
• | Credit Performance |
◦ | Our charge-offs, gross, were $0.7 billion during the third quarter of 2015 compared to $1.1 billion during the third quarter of 2014. We expect our charge-offs and credit losses to decline over time, but to remain elevated in the near term. |
◦ | For the near term, we also expect REO disposition and short sale severity ratios to remain high relative to historic levels while the number of seriously delinquent mortgage loans and the volume of our mortgage loan workouts may continue to decline. |
• | Market Conditions |
◦ | Low vacancy rates and higher average rents present favorable conditions for the multifamily market and our business, as multifamily mortgage loans are dependent on the cash flow of the underlying properties. |
◦ | We believe demand for rental housing will remain strong in the near term because of a strengthening job market and growth of household formations. |
◦ | We expect that new supply of multifamily housing, at the national level, will be absorbed by market demand in the near term, driven by continued improvements in the economy and favorable demographics. |
◦ | We believe there has been significant growth in the multifamily market during the nine months ended September 30, 2015. As reported by the Federal Reserve, total multifamily mortgage loan debt outstanding was more than $1.0 trillion at June 30, 2015 (the latest available information), representing an increase of $92.7 billion (or 9.8%) since June 30, 2014, the largest annual increase ever reported by the Federal Reserve. |
• | New Business Volumes |
◦ | Our new multifamily business activity during the nine months ended September 30, 2015 was $34.1 billion compared to $14.1 billion during the nine months ended September 30, 2014. |
◦ | Based on FHFA's revised 2015 Scorecard guidance, approximately 70% of our $34.1 billion in new business activity during the nine months ended September 30, 2015 was counted towards the 2015 volume limit of $30.0 billion and the remaining 30% was excluded from the limit. |
◦ | While we continue exploring opportunities to provide financing for workforce housing, we expect to remain within the 2015 Scorecard limit for new business volume. |
• | Securitization Activity |
◦ | Since the beginning of 2009, we have sold approximately $115 billion of mortgage loans through K Certificate transactions and transferred the expected credit risk to third party investors through the use of subordination, as this has become the primary focus of our business model. |
• | Credit Performance |
◦ | The delinquency rate on our multifamily mortgage portfolio was 0.01% at September 30, 2015. Multifamily credit losses as a percentage of the average balance of our multifamily mortgage portfolio were 0.8 basis points in the nine months ended September 30, 2015. |
◦ | We expect the credit losses and delinquency rates for the multifamily mortgage portfolio to remain low in the near term. |
9 | Freddie Mac Form 10-Q |
September 30, 2015 | December 31, 2014 | ||||||||||||||||||||||
More Liquid | Less Liquid | Total | More Liquid | Less Liquid | Total | ||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Investments segment — Mortgage investments portfolio: | |||||||||||||||||||||||
Single-family unsecuritized mortgage loans | $ | — | $ | 77,843 | $ | 77,843 | $ | — | $ | 82,778 | $ | 82,778 | |||||||||||
Freddie Mac mortgage-related securities | 143,603 | 6,365 | 149,968 | 150,852 | 7,363 | 158,215 | |||||||||||||||||
Non-agency mortgage-related securities | — | 30,020 | 30,020 | — | 44,230 | 44,230 | |||||||||||||||||
Non-Freddie Mac agency mortgage-related securities | 14,063 | — | 14,063 | 16,341 | — | 16,341 | |||||||||||||||||
Total Investments segment — Mortgage investments portfolio | 157,666 | 114,228 | 271,894 | 167,193 | 134,371 | 301,564 | |||||||||||||||||
Single-family Guarantee segment — Single-family unsecuritized seriously delinquent mortgage loans | — | 21,352 | 21,352 | — | 28,738 | 28,738 | |||||||||||||||||
Multifamily segment — Mortgage investments portfolio | 3,573 | 70,326 | 73,899 | 1,911 | 76,201 | 78,112 | |||||||||||||||||
Total mortgage-related investments portfolio | $ | 161,239 | $ | 205,906 | $ | 367,145 | $ | 169,104 | $ | 239,310 | $ | 408,414 | |||||||||||
Percentage of total mortgage-related investments portfolio | 44 | % | 56 | % | 100 | % | 41 | % | 59 | % | 100 | % | |||||||||||
Mortgage-related investments portfolio cap at December 31, 2015 and 2014, respectively | $ | 399,181 | $ | 469,625 | |||||||||||||||||||
90% of mortgage-related investments portfolio cap at December 31, 2015(1) | $ | 359,263 |
(1) | Represents the amount that we manage to under our 2014 Retained Portfolio Plan, subject to certain exceptions. |
• | Single-class and multiclass agency securities (excluding certain structured agency securities collateralized by non-agency mortgage-related securities); and |
• | Assets that are less liquid than the agency securities noted above. Assets that we consider to be less liquid than agency securities include unsecuritized single-family and multifamily mortgage loans, certain structured agency securities collateralized by non-agency mortgage-related securities, and our investments in non-agency mortgage-related securities. |
10 | Freddie Mac Form 10-Q |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(dollars in millions, except share-related amounts) | |||||||||||||||
Statements of Comprehensive Income Data | |||||||||||||||
Net interest income | $ | 3,743 | $ | 3,663 | $ | 11,359 | $ | 10,676 | |||||||
Benefit (provision) for credit losses | 528 | (574 | ) | 1,884 | (41 | ) | |||||||||
Non-interest income (loss) | (3,841 | ) | 764 | (3,447 | ) | 2,469 | |||||||||
Non-interest expense | (1,099 | ) | (816 | ) | (3,599 | ) | (2,267 | ) | |||||||
Income tax benefit (expense) | 194 | (956 | ) | (1,979 | ) | (3,374 | ) | ||||||||
Net income (loss) | (475 | ) | 2,081 | 4,218 | 7,463 | ||||||||||
Comprehensive income (loss) | (501 | ) | 2,786 | 4,158 | 9,175 | ||||||||||
Net income (loss) attributable to common stockholders(1) | (475 | ) | (705 | ) | (441 | ) | (1,712 | ) | |||||||
Net income (loss) per common share – basic and diluted | (0.15 | ) | (0.22 | ) | (0.14 | ) | (0.53 | ) | |||||||
Cash dividends per common share | — | — | — | — | |||||||||||
Weighted average common shares outstanding (in millions) – basic and diluted | 3,234 | 3,236 | 3,235 | 3,236 | |||||||||||
September 30, 2015 | December 31, 2014 | ||||||||||||||
(dollars in millions) | |||||||||||||||
Balance Sheets Data | |||||||||||||||
Mortgage loans held-for-investment, at amortized cost by consolidated trusts (net of allowances for loan losses) | $ | 1,615,291 | $ | 1,558,094 | |||||||||||
Total assets | 1,962,147 | 1,945,539 | |||||||||||||
Debt securities of consolidated trusts held by third parties | 1,539,108 | 1,479,473 | |||||||||||||
Other debt | 408,281 | 450,069 | |||||||||||||
All other liabilities | 13,459 | 13,346 | |||||||||||||
Total stockholders’ equity | 1,299 | 2,651 | |||||||||||||
Portfolio Balances - UPB | |||||||||||||||
Mortgage-related investments portfolio | $ | 367,145 | $ | 408,414 | |||||||||||
Total Freddie Mac mortgage-related securities(2) | 1,706,672 | 1,637,086 | |||||||||||||
Total mortgage portfolio | 1,931,342 | 1,910,106 | |||||||||||||
TDRs on accrual status | 83,169 | 82,908 | |||||||||||||
Non-accrual loans | 24,584 | 33,130 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Ratios(3) | |||||||||||||||
Return on average assets(4) | (0.1 | )% | 0.4 | % | 0.3 | % | 0.5 | % | |||||||
Allowance for loans losses as percentage of mortgage loans, held-for-investment(5) | 0.9 | 1.3 | 0.9 | 1.3 | |||||||||||
Equity to assets ratio(6) | 0.2 | 0.2 | 0.1 | 0.5 |
(1) | For a discussion of the manner in which the senior preferred stock dividend is determined and how it affects net income (loss) attributable to common stockholders, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Earnings Per Common Share” in our 2014 Annual Report. |
(2) | See ‘‘Table 24 — Freddie Mac Mortgage-Related Securities’’ for the composition of this line item. |
(3) | The dividend payout ratio on common stock is not presented because the amount of cash dividends per common share is zero for all periods presented. The return on common equity ratio is not presented because the simple average of the beginning and ending balances of total stockholders’ equity, net of preferred stock (at redemption value) is less than zero for all periods presented. |
(4) | Ratio computed as net income divided by the simple average of the beginning and ending balances of total assets. |
(5) | Ratio computed as the allowance for loan losses divided by the total recorded investment of held-for-investment mortgage loans. |
(6) | Ratio computed as the simple average of the beginning and ending balances of total stockholders’ equity divided by the simple average of the beginning and ending balances of total assets. |
11 | Freddie Mac Form 10-Q |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2015 | 2014 | Variance | 2015 | 2014 | Variance | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Net interest income | $ | 3,743 | $ | 3,663 | $ | 80 | $ | 11,359 | $ | 10,676 | $ | 683 | ||||||||||||
Benefit (provision) for credit losses | 528 | (574 | ) | 1,102 | 1,884 | (41 | ) | 1,925 | ||||||||||||||||
Net interest income after benefit (provision) for credit losses | 4,271 | 3,089 | 1,182 | 13,243 | 10,635 | 2,608 | ||||||||||||||||||
Non-interest income (loss): | ||||||||||||||||||||||||
Gains (losses) on extinguishment of debt securities of consolidated trusts | (5 | ) | (132 | ) | 127 | (139 | ) | (308 | ) | 169 | ||||||||||||||
Gains (losses) on retirement of other debt | 9 | (8 | ) | 17 | (16 | ) | — | (16 | ) | |||||||||||||||
Derivative gains (losses) | (4,172 | ) | (617 | ) | (3,555 | ) | (3,440 | ) | (4,894 | ) | 1,454 | |||||||||||||
Net impairment of available-for-sale securities recognized in earnings | (54 | ) | (166 | ) | 112 | (245 | ) | (687 | ) | 442 | ||||||||||||||
Other gains (losses) on investment securities recognized in earnings | 256 | (109 | ) | 365 | 825 | 1,029 | (204 | ) | ||||||||||||||||
Other income (loss) | 125 | 1,796 | (1,671 | ) | (432 | ) | 7,329 | (7,761 | ) | |||||||||||||||
Total non-interest income (loss) | (3,841 | ) | 764 | (4,605 | ) | (3,447 | ) | 2,469 | (5,916 | ) | ||||||||||||||
Non-interest expense: | ||||||||||||||||||||||||
Administrative expense | (465 | ) | (472 | ) | 7 | (1,417 | ) | (1,393 | ) | (24 | ) | |||||||||||||
REO operations expense | (116 | ) | (103 | ) | (13 | ) | (243 | ) | (112 | ) | (131 | ) | ||||||||||||
Temporary Payroll Tax Cut Continuation Act of 2011 expense | (248 | ) | (198 | ) | (50 | ) | (705 | ) | (563 | ) | (142 | ) | ||||||||||||
Other expense | (270 | ) | (43 | ) | (227 | ) | (1,234 | ) | (199 | ) | (1,035 | ) | ||||||||||||
Total non-interest expense | (1,099 | ) | (816 | ) | (283 | ) | (3,599 | ) | (2,267 | ) | (1,332 | ) | ||||||||||||
Income (loss) before income tax benefit (expense) | (669 | ) | 3,037 | (3,706 | ) | 6,197 | 10,837 | (4,640 | ) | |||||||||||||||
Income tax benefit (expense) | 194 | (956 | ) | 1,150 | (1,979 | ) | (3,374 | ) | 1,395 | |||||||||||||||
Net income (loss) | (475 | ) | 2,081 | (2,556 | ) | 4,218 | 7,463 | (3,245 | ) | |||||||||||||||
Other comprehensive income (loss), net of taxes and reclassification adjustments | (26 | ) | 705 | (731 | ) | (60 | ) | 1,712 | (1,772 | ) | ||||||||||||||
Comprehensive income (loss) | $ | (501 | ) | $ | 2,786 | $ | (3,287 | ) | $ | 4,158 | $ | 9,175 | $ | (5,017 | ) |
12 | Freddie Mac Form 10-Q |
Three Months Ended September 30, | |||||||||||||||||||||
2015 | 2014 | ||||||||||||||||||||
Average Balance | Interest Income (Expense) | Average Rate | Average Balance | Interest Income (Expense) | Average Rate | ||||||||||||||||
(dollars in millions) | |||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||
Cash and cash equivalents | $ | 11,849 | $ | 1 | 0.04 | % | $ | 9,842 | $ | 1 | 0.04 | % | |||||||||
Federal funds sold and securities purchased under agreements to resell | 53,046 | 18 | 0.13 | 43,205 | 7 | 0.06 | |||||||||||||||
Mortgage-related securities: | |||||||||||||||||||||
Mortgage-related securities | 217,830 | 2,092 | 3.84 | 252,205 | 2,465 | 3.91 | |||||||||||||||
Extinguishment of PCs held by Freddie Mac | (105,709 | ) | (951 | ) | (3.60 | ) | (110,511 | ) | (1,043 | ) | (3.78 | ) | |||||||||
Total mortgage-related securities, net | 112,121 | 1,141 | 4.07 | 141,694 | 1,422 | 4.01 | |||||||||||||||
Non-mortgage-related securities | 8,738 | 4 | 0.17 | 11,668 | 1 | 0.02 | |||||||||||||||
Mortgage loans held by consolidated trusts(1) | 1,601,069 | 14,032 | 3.51 | 1,539,913 | 14,148 | 3.68 | |||||||||||||||
Unsecuritized mortgage loans(1) | 156,248 | 1,563 | 4.00 | 167,683 | 1,643 | 3.92 | |||||||||||||||
Total interest-earning assets | $ | 1,943,071 | $ | 16,759 | 3.45 | $ | 1,914,005 | $ | 17,222 | 3.60 | |||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||
Debt securities of consolidated trusts including PCs held by Freddie Mac | $ | 1,621,197 | $ | (12,315 | ) | (3.04 | ) | $ | 1,558,023 | $ | (12,845 | ) | (3.30 | ) | |||||||
Extinguishment of PCs held by Freddie Mac | (105,709 | ) | 951 | 3.60 | (110,511 | ) | 1,043 | 3.78 | |||||||||||||
Total debt securities of consolidated trusts held by third parties | 1,515,488 | (11,364 | ) | (3.00 | ) | 1,447,512 | (11,802 | ) | (3.26 | ) | |||||||||||
Other debt: | |||||||||||||||||||||
Short-term debt | 99,050 | (40 | ) | (0.16 | ) | 116,624 | (35 | ) | (0.12 | ) | |||||||||||
Long-term debt | 310,204 | (1,559 | ) | (2.01 | ) | 326,610 | (1,647 | ) | (2.01 | ) | |||||||||||
Total other debt | 409,254 | (1,599 | ) | (1.56 | ) | 443,234 | (1,682 | ) | (1.52 | ) | |||||||||||
Total interest-bearing liabilities | 1,924,742 | (12,963 | ) | (2.70 | ) | 1,890,746 | (13,484 | ) | (2.84 | ) | |||||||||||
Expense related to derivatives(2) | — | (53 | ) | (0.01 | ) | — | (75 | ) | (0.02 | ) | |||||||||||
Impact of net non-interest-bearing funding | 18,329 | — | 0.03 | 23,259 | — | 0.03 | |||||||||||||||
Total funding of interest-earning assets | $ | 1,943,071 | $ | (13,016 | ) | (2.68 | ) | $ | 1,914,005 | $ | (13,559 | ) | (2.83 | ) | |||||||
Net interest income/yield | $ | 3,743 | 0.77 | $ | 3,663 | 0.77 | |||||||||||||||
Nine Months Ended September 30, | |||||||||||||||||||||
2015 | 2014 | ||||||||||||||||||||
Average Balance | Interest Income (Expense) | Average Rate | Average Balance | Interest Income (Expense) | Average Rate | ||||||||||||||||
(dollars in millions) | |||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||
Cash and cash equivalents | $ | 12,458 | $ | 6 | 0.06 | % | $ | 14,188 | $ | 2 | 0.02 | % | |||||||||
Federal funds sold and securities purchased under agreements to resell | 50,278 | 39 | 0.11 | 41,645 | 17 | 0.06 | |||||||||||||||
Mortgage-related securities: | |||||||||||||||||||||
Mortgage-related securities | 231,969 | 6,728 | 3.87 | 260,172 | 7,629 | 3.91 | |||||||||||||||
Extinguishment of PCs held by Freddie Mac | (109,167 | ) | (3,002 | ) | (3.67 | ) | (112,553 | ) | (3,177 | ) | (3.76 | ) | |||||||||
Total mortgage-related securities, net | 122,802 | 3,726 | 4.05 | 147,619 | 4,452 | 4.02 | |||||||||||||||
Non-mortgage-related securities | 9,965 | 10 | 0.12 | 9,952 | 5 | 0.06 | |||||||||||||||
Mortgage loans held by consolidated trusts(1) | 1,579,720 | 41,641 | 3.51 | 1,535,099 | 42,881 | 3.72 | |||||||||||||||
Unsecuritized mortgage loans(1) | 161,628 | 4,792 | 3.95 | 172,311 | 4,965 | 3.84 | |||||||||||||||
Total interest-earning assets | $ | 1,936,851 | $ | 50,214 | 3.46 | $ | 1,920,814 | $ | 52,322 | 3.63 | |||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||
Debt securities of consolidated trusts including PCs held by Freddie Mac | $ | 1,600,556 | $ | (36,858 | ) | (3.07 | ) | $ | 1,551,918 | $ | (39,327 | ) | (3.38 | ) | |||||||
Extinguishment of PCs held by Freddie Mac | (109,167 | ) | 3,002 | 3.67 | (112,553 | ) | 3,177 | 3.76 | |||||||||||||
Total debt securities of consolidated trusts held by third parties | 1,491,389 | (33,856 | ) | (3.03 | ) | 1,439,365 | (36,150 | ) | (3.35 | ) | |||||||||||
Other debt: | |||||||||||||||||||||
Short-term debt | 107,941 | (114 | ) | (0.14 | ) | 117,795 | (110 | ) | (0.12 | ) | |||||||||||
Long-term debt | 320,506 | (4,709 | ) | (1.96 | ) | 335,934 | (5,156 | ) | (2.05 | ) | |||||||||||
Total other debt | 428,447 | (4,823 | ) | (1.50 | ) | 453,729 | (5,266 | ) | (1.55 | ) | |||||||||||
Total interest-bearing liabilities | 1,919,836 | (38,679 | ) | (2.69 | ) | 1,893,094 | (41,416 | ) | (2.91 | ) | |||||||||||
Expense related to derivatives(2) | — | (176 | ) | (0.01 | ) | — | (230 | ) | (0.02 | ) | |||||||||||
Impact of net non-interest-bearing funding | 17,015 | — | 0.02 | 27,720 | — | 0.04 | |||||||||||||||
Total funding of interest-earning assets | $ | 1,936,851 | $ | (38,855 | ) | (2.68 | ) | $ | 1,920,814 | $ | (41,646 | ) | (2.89 | ) | |||||||
Net interest income/yield | $ | 11,359 | 0.78 | $ | 10,676 | 0.74 |
(1) | Mortgage loans on non-accrual status, where interest income is generally recognized when collected, are included in average balances. |
(2) | Represents changes in fair value of derivatives in closed cash flow hedge relationships that were previously deferred in AOCI and have been reclassified to earnings as the interest expense associated with the hedged forecasted issuance of debt affects earnings. |
13 | Freddie Mac Form 10-Q |
• | Higher management and guarantee fee income — Management and guarantee fee income increased in the three and nine months ended September 30, 2015, compared to the same periods in 2014, as the management and guarantee fees received on new business are higher than older vintages that continue to run off. The percentage of our net interest income derived from management and guarantee fees continues to increase, and we expect this trend will continue. We estimate that more than 40% of our net interest income during the three and nine months ended September 30, 2015 was derived from management and guarantee fee income. Net interest income includes the legislated 10 basis point increase in management and guarantee fees, which is remitted to Treasury as part of the Temporary Payroll Tax Cut Continuation Act of 2011. Net interest income includes $247 million and $699 million during the three and nine months ended September 30, 2015, respectively, compared to $196 million and $551 million during the three and nine months ended September 30, 2014, respectively, related to these fees. |
• | Increased amortization of upfront fees and basis adjustments — During the three and nine months ended September 30, 2015, average mortgage interest rates declined as compared to the same periods in 2014. This decline in average mortgage interest rates caused an increase in borrower refinance activity. As borrowers refinance and our liquidation rate increases, the amortization of the upfront fees and basis adjustments associated with these mortgage loans and the securities that are backed by these mortgage loans increases, which generally has a positive effect on net interest income and net interest yield. The timing of the amortization for the mortgage loans differs from the timing of the amortization for the securities that are backed by these mortgage loans, because proceeds received from the mortgage loans backing these securities are remitted to the security holders at a later date. This timing difference can contribute to short-term volatility in net interest income period over period. In addition, our balance of deferred upfront fees and basis adjustments continues to increase as we add new business. |
• | A decline in the average balance of our higher-yielding assets — The balance of our higher-yielding assets continues to decline, consistent with the required reduction of our mortgage-related investments portfolio. This decline has placed downward pressure on our net interest income and net interest yield and will likely continue to do so in the future. |
14 | Freddie Mac Form 10-Q |
2015 | 2014 | |||||||||||||
Number of Mortgage Loans | Amount (1) | Number of Mortgage Loans | Amount | |||||||||||
(dollars in millions) | ||||||||||||||
TDRs, at January 1, | 539,590 | $ | 94,401 | 514,497 | $ | 92,505 | ||||||||
New additions | 44,439 | 6,176 | 61,345 | 8,891 | ||||||||||
Repayments, charge-offs, and reclassifications to/from held-for-sale | (52,947 | ) | (10,695 | ) | (20,972 | ) | (3,802 | ) | ||||||
Foreclosure transfers and foreclosure alternatives | (14,625 | ) | (2,304 | ) | (19,432 | ) | (3,356 | ) | ||||||
TDRs, at September 30, | 516,457 | 87,578 | 535,438 | 94,238 | ||||||||||
Mortgage loans impaired upon purchase | 10,327 | 747 | 10,308 | 785 | ||||||||||
Total impaired mortgage loans with specific reserve | 526,784 | 88,325 | 545,746 | 95,023 | ||||||||||
Total allowance for loan losses of individually impaired single-family mortgage loans | (14,847 | ) | (18,199 | ) | ||||||||||
Net investment, at September 30, | $ | 73,478 | $ | 76,824 |
(1) | The net investment amount for 2015 includes charge-offs related to our January 1, 2015 adoption of regulatory guidance that changed when we deem mortgage loans to be uncollectible. |
15 | Freddie Mac Form 10-Q |
September 30, 2015 | December 31, 2014 | September 30, 2014 | ||||||||||
(dollars in millions) | ||||||||||||
TDRs on accrual status: | ||||||||||||
Single-family | $ | 82,830 | $ | 82,373 | $ | 82,152 | ||||||
Multifamily | 339 | 535 | 597 | |||||||||
Subtotal —TDRs on accrual status | 83,169 | 82,908 | 82,749 | |||||||||
Non-accrual mortgage loans: | ||||||||||||
Single-family | 24,342 | 32,745 | 34,145 | |||||||||
Multifamily(1) | 242 | 385 | 411 | |||||||||
Subtotal — non-accrual mortgage loans | 24,584 | 33,130 | 34,556 | |||||||||
Total TDRs and non-accrual mortgage loans(2) | $ | 107,753 | $ | 116,038 | $ | 117,305 | ||||||
Loan loss reserves associated with: | ||||||||||||
TDRs on accrual status | $ | 12,791 | $ | 13,749 | $ | 14,079 | ||||||
Non-accrual mortgage loans | 2,975 | 6,966 | 7,336 | |||||||||
Total loan loss reserves associated with TDRs and non-accrual mortgage loans | $ | 15,766 | $ | 20,715 | $ | 21,415 | ||||||
Ratio of total loan loss reserves (excluding reserves for TDR concessions) to annualized net charge-offs for single-family mortgage loans | 2.9 | 2.7 | 3.1 | |||||||||
Ratio of total loan loss reserves to annualized net charge-offs for single-family mortgage loans | 8.2 | 5.6 | 6.3 | |||||||||
Nine Months Ended September 30, | ||||||||||||
2015 | 2014 | |||||||||||
(in millions) | ||||||||||||
Foregone interest income on TDR and non-accrual mortgage loans: | ||||||||||||
Single-family | $ | 2,172 | $ | 2,574 | ||||||||
Multifamily | 3 | 4 | ||||||||||
Total foregone interest income on TDR and non-accrual mortgage loans | $ | 2,175 | $ | 2,578 |
(1) | Includes $242 million, $385 million, and $402 million in UPB of mortgage loans that were current as of September 30, 2015, December 31, 2014, and September 30, 2014, respectively. |
(2) | As of January 1, 2015, we adopted regulatory guidance that changed when we deem mortgage loans to be uncollectible. As of September 30, 2015, there was $6.4 billion in UPB of our TDR and non-accrual mortgage loans, of which we had charged-off $1.8 billion during the nine months ended September 30, 2015 that reduced our recorded investment in these mortgage loans. |
16 | Freddie Mac Form 10-Q |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(dollars in millions) | |||||||||||||||
REO | |||||||||||||||
REO balances, net: | |||||||||||||||
Single-family | $ | 1,787 | $ | 2,911 | $ | 1,787 | $ | 2,911 | |||||||
Multifamily | 8 | — | 8 | — | |||||||||||
Total | $ | 1,795 | $ | 2,911 | $ | 1,795 | $ | 2,911 | |||||||
REO operations expense (income): | |||||||||||||||
Single-family | $ | 116 | $ | 109 | $ | 243 | $ | 120 | |||||||
Multifamily | — | (6 | ) | — | (8 | ) | |||||||||
Total | $ | 116 | $ | 103 | $ | 243 | $ | 112 | |||||||
Charge-offs | |||||||||||||||
Single-family: | |||||||||||||||
Charge-offs, gross(1) | $ | 703 | $ | 1,109 | $ | 4,558 | $ | 3,826 | |||||||
Recoveries(2) | (177 | ) | (190 | ) | (547 | ) | (1,100 | ) | |||||||
Single-family, net | $ | 526 | $ | 919 | $ | 4,011 | $ | 2,726 | |||||||
Multifamily: | |||||||||||||||
Charge-offs, gross | $ | 3 | $ | — | $ | 9 | $ | 2 | |||||||
Recoveries | — | (1 | ) | — | (1 | ) | |||||||||
Multifamily, net | $ | 3 | $ | (1 | ) | $ | 9 | $ | 1 | ||||||
Total Charge-offs: | |||||||||||||||
Charge-offs, gross | $ | 706 | $ | 1,109 | $ | 4,567 | $ | 3,828 | |||||||
Recoveries | (177 | ) | (191 | ) | (547 | ) | (1,101 | ) | |||||||
Total Charge-offs, net | $ | 529 | $ | 918 | $ | 4,020 | $ | 2,727 | |||||||
Credit Losses: | |||||||||||||||
Single-family | $ | 642 | $ | 1,028 | $ | 4,254 | $ | 2,846 | |||||||
Multifamily | 3 | (7 | ) | 9 | (7 | ) | |||||||||
Total | $ | 645 | $ | 1,021 | $ | 4,263 | $ | 2,839 | |||||||
Total (in bps)(3) | 13.8 | 22.6 | 30.7 | 20.9 |
(1) | Charge-offs include $23 million and $21 million during the three months ended September 30, 2015 and the three months ended September 30, 2014, respectively, and $75 million and $59 million during the nine months ended September 30, 2015 and the nine months ended September 30, 2014, respectively, related to losses on mortgage loans purchased under financial guarantees that were recorded within other expenses on our consolidated statements of comprehensive income. |
(2) | Includes $0.5 billion during the nine months ended September 30, 2014 related to repurchase requests made to our seller/servicers (including $0.3 billion related to settlement agreements with certain sellers to release specified mortgage loans from certain repurchase obligations in exchange for one-time cash payments). Excludes certain recoveries, such as pool insurance, which are included in non-interest income on our consolidated statements of comprehensive income. |
(3) | Includes charge-offs of $1.9 billion associated with our initial adoption of regulatory guidance on January 1, 2015. Excluding this amount, the total credit losses (in bps) during the nine months ended September 30, 2015 were 16.8. |
17 | Freddie Mac Form 10-Q |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||
Severity ratios: | |||||||||||
REO dispositions and third-party sales(1) | 34.3 | % | 33.3 | % | 34.5 | % | 33.8 | % | |||
Short sales | 29.8 | 32.0 | 30.3 | 31.6 |
(1) | Calculated as combined collateral losses on REO dispositions and third-party sales at foreclosure auction, divided by the combined UPB of the related mortgage loans. Includes selling and repair expenses. Excludes recoveries related to settlement agreements with certain sellers to release specified mortgage loans from certain repurchase obligations in exchange for one-time cash payments. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(in millions) | |||||||||||||||
Interest-rate swaps | $ | (4,693 | ) | $ | (184 | ) | $ | (2,514 | ) | $ | (3,505 | ) | |||
Option-based derivatives | 1,171 | 78 | 722 | 344 | |||||||||||
Other derivatives(1) | (114 | ) | 116 | (9 | ) | 241 | |||||||||
Accrual of periodic settlements | (536 | ) | (627 | ) | (1,639 | ) | (1,974 | ) | |||||||
Total | $ | (4,172 | ) | $ | (617 | ) | $ | (3,440 | ) | $ | (4,894 | ) |
(1) | Primarily includes futures, commitments, credit derivatives and swap guarantee derivatives. |
18 | Freddie Mac Form 10-Q |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(in millions) | |||||||||||||||
Gains (losses) on trading securities | $ | (56 | ) | $ | (216 | ) | $ | (329 | ) | $ | (183 | ) | |||
Gains (losses) on sales of available-for-sale securities | 312 | 107 | 1,154 | 1,212 | |||||||||||
Total | $ | 256 | $ | (109 | ) | $ | 825 | $ | 1,029 |
19 | Freddie Mac Form 10-Q |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(in millions) | |||||||||||||||
Other income (loss): | |||||||||||||||
Non-agency mortgage-related securities settlements | $ | — | $ | 1,187 | $ | — | $ | 6,084 | |||||||
Gains (losses) on mortgage loans | (197 | ) | 168 | (1,321 | ) | 383 | |||||||||
Recoveries on mortgage loans acquired with deteriorated credit quality(1) | 30 | 53 | 95 | 162 | |||||||||||
Management and guarantee fee-related income, net(2) | 85 | 40 | 321 | 184 | |||||||||||
All other | 207 | 348 | 473 | 516 | |||||||||||
Total other income (loss) | $ | 125 | $ | 1,796 | $ | (432 | ) | $ | 7,329 |
(1) | Primarily relates to mortgage loans acquired with deteriorated credit quality prior to 2010. Consequently, our recoveries on these mortgage loans will generally decline over time. |
(2) | Primarily relates to securitized mortgage loans that we guarantee and have not consolidated the securitization trusts on our consolidated balance sheets. |
• | Gains (losses) on mortgage loans held-for-sale related to lower-of-cost-or-fair-value adjustments were $(0.3) billion and $0.1 billion during the three months ended September 30, 2015 and the three months ended September 30, 2014, respectively, and were $(1.5) billion and $(0.1) billion during the nine months ended September 30, 2015 and the nine months ended September 30, 2014, respectively. The higher losses during the 2015 periods were primarily due to a larger volume of mortgage loans reclassified from held-for-investment to held-for-sale during the 2015 periods, compared to the 2014 periods. |
• | During the three and nine months ended September 30, 2015, we reclassified $2.5 billion and $10.6 billion, respectively, in UPB of single-family mortgage loans from held-for-investment to held-for-sale, compared to $0.7 billion in UPB during the nine months ended September 30, 2014. We did not have any such reclassification during the three months ended September 30, 2014. |
• | During the three and nine months ended September 30, 2015, we reclassified $1.8 billion and $2.1 billion, respectively, in UPB of multifamily mortgage loans from held-for-investment to held-for-sale. We did not have any such reclassification during the comparable 2014 periods. |
• | We held $7.1 billion and $2.1 billion in UPB of single-family and multifamily mortgage loans, respectively, for sale and evaluated at lower-of-cost-or-fair-value on our consolidated balance sheet at September 30, 2015. |
• | Gains (losses) realized on the sale of mortgage loans were not significant for the three and nine months ended September 30, 2015, or the comparable 2014 periods, as gains from declining interest rates were offset by losses from widening spreads. |
• | We sold $6.0 billion and $21.2 billion in UPB of multifamily mortgage loans during the three and nine months ended September 30, 2015, respectively. We sold $4.5 billion and $12.9 billion in UPB of multifamily mortgage loans during the comparable 2014 periods. |
• | We sold $0.6 billion and $1.9 billion in UPB of single-family mortgage loans during the three and nine months ended September 30, 2015, respectively. We sold $0.6 billion in UPB of single-family mortgage loans during the comparable 2014 periods. |
• | Gains resulting from changes in the fair value of multifamily mortgage loans for which we have elected the fair value option were $0.2 billion and $0.3 billion during the three and nine months ended September 30, 2015, respectively, compared to $0.1 billion and $0.4 billion during the three and nine months ended September 30, 2014, respectively. These gains were primarily due to declining interest rates, partially offset by losses due to widening spreads. |
20 | Freddie Mac Form 10-Q |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
(in millions) | ||||||||||||||||
Administrative expense: | ||||||||||||||||
Salaries and employee benefits | $ | 231 | $ | 231 | $ | 742 | $ | 687 | ||||||||
Professional services | 130 | 128 | 361 | 392 | ||||||||||||
Occupancy expense | 14 | 16 | 40 | 43 | ||||||||||||
Other administrative expense | 90 | 97 | 274 | 271 | ||||||||||||
Total administrative expense | 465 | 472 | 1,417 | 1,393 | ||||||||||||
REO operations expense | 116 | 103 | 243 | 112 | ||||||||||||
Temporary Payroll Tax Cut Continuation Act of 2011 expense | 248 | 198 | 705 | 563 | ||||||||||||
Other expense | 270 | 43 | 1,234 | 199 | ||||||||||||
Total non-interest expense | $ | 1,099 | $ | 816 | $ | 3,599 | $ | 2,267 |
21 | Freddie Mac Form 10-Q |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
(in millions) | |||||||||||||||
Other comprehensive income, excluding reclassifications and amortization | $ | 217 | $ | 750 | $ | 754 | $ | 2,289 | |||||||