Management's Discussion and Analysis Introduction
Management's Discussion and Analysis of Financial Condition and Results of
Operations
This Quarterly Report on Form 10-Q includes forward-looking statements that are
based on current expectations and that are subject to significant risks and
uncertainties. These forward-looking statements are made as of the date of this
Form 10-Q. We undertake no obligation to update any forward-looking statement to
reflect events or circumstances after the date of this Form 10-Q. Actual results
might differ significantly from those described in or implied by such statements
due to various factors and uncertainties, including those described in the MD&A
- Forward-Looking Statements section of this Form 10-Q and the Introduction and
Risk Factors sections of our Annual Report on Form 10-K for the year ended
Throughout this Form 10-Q, we use certain acronyms and terms that are defined in
the Glossary of our 2021 Annual Report.
You should read the following MD&A in conjunction with our 2021 Annual Report
and our condensed consolidated financial statements and accompanying notes for
the three months ended
INTRODUCTION
liquidity, stability, and affordability to the
primarily by purchasing single-family and multifamily residential mortgage loans
originated by lenders. In most instances, we package these loans into guaranteed
mortgage-related securities, which are sold in the global capital markets, and
transfer interest-rate and liquidity risks to third-party investors. In
addition, we transfer mortgage credit risk exposure to third-party investors
through our credit risk transfer programs, which include securities- and
insurance-based offerings. We also invest in mortgage loans and mortgage-related
securities. We do not originate mortgage loans or lend money directly to
mortgage borrowers.
We support the
families to access mortgage loan funding with better terms and by providing
consistent liquidity to the single-family and multifamily mortgage markets. We
have helped many distressed borrowers keep their homes or avoid foreclosure and
have helped many distressed renters avoid eviction.
Since
our Conservator. The conservatorship and related matters significantly affect
our management, business activities, financial condition, and results of
operations. Our future is uncertain, and the conservatorship has no specified
termination date. We do not know what changes may occur to our business model
during or following conservatorship, including whether we will continue to
exist. In connection with our entry into conservatorship, we entered into the
Purchase Agreement with
preferred stock and a warrant to purchase common stock. Our Purchase Agreement
with
a receiver by FHFA under statutory mandatory receivership provisions. We believe
the support provided by
enables us to have adequate liquidity to conduct normal business activities. For
additional information on the conservatorship and related matters and the
Purchase Agreement, see our 2021 Annual Report.
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Management's Discussion and Analysis Introduction
Business Results
Consolidated Financial Results
Net Revenues and Net Income
(In billions)
[[Image Removed: fmcc-20220331_g2.jpg]]
Net Worth
(In billions)
[[Image Removed: fmcc-20220331_g3.jpg]]
n Net income was
The increase in net income was driven by higher net revenues and a credit
reserve release in Single-Family.
n Net revenues increased 11% year-over-year to
by higher net interest income and higher net investment gains.
n Net worth was
added to the aggregate liquidation preference of the senior preferred stock. The
liquidation preference of the senior preferred stock was
31, 2022
billion
Market Liquidity
Market Liquidity
(In thousands)
[[Image Removed: fmcc-20220331_g4.jpg]]
We support the
and help maintain credit availability for new and refinanced single-family
mortgages as well as for rental housing. We provided
to the mortgage market in 1Q 2022, which enabled the financing of over 835,000
home purchases, refinancings, and rental units.
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Management's Discussion and Analysis Introduction
Mortgage Portfolio Balances
Mortgage Portfolio
(UPB in billions)
[[Image Removed: fmcc-20220331_g5.jpg]]
n Our mortgage portfolio increased 16% year-over-year to
by a 17% increase in our Single-Family mortgage portfolio and a 5% increase in
our Multifamily mortgage portfolio.
l The growth in our Single-Family mortgage portfolio was primarily driven by
continued house price appreciation and strong home purchase activity. Continued
house price appreciation contributed to new business acquisitions having a
higher average loan size compared to older vintages that continued to run off.
l The growth in our Multifamily mortgage portfolio was primarily driven by
ongoing loan purchase and securitization activity attributable to continued high
demand for multifamily financing.
Credit Risk Transfer
Single-Family Mortgage Portfolio with Credit Enhancement
(UPB in billions)
[[Image Removed: fmcc-20220331_g6.jpg]]
Multifamily Mortgage Portfolio with Credit Enhancement
(UPB in billions)
[[Image Removed: fmcc-20220331_g7.jpg]]
In addition to transferring interest-rate and liquidity risk to third-party
investors through our securitization activities, we engage in various credit
enhancement arrangements to reduce our credit risk exposure. We transfer a
portion of the credit risk, primarily on recently acquired loans, through our
CRT programs. We also reduce our credit risk exposure through other credit
enhancement arrangements, mainly primary mortgage insurance. See MD&A - Risk
Management - Credit Risk for additional information on our credit enhancements
and CRT programs.
Freddie Mac 1Q 2022 Form 10-Q 3
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Management's Discussion and Analysis Market Conditions and Economic Indicators
MARKET CONDITIONS AND ECONOMIC INDICATORS
The following graphs and related discussions present certain market and
macroeconomic indicators that can significantly affect our business and
financial results.
Interest Rates(1)
Quarterly Ending Rates[[Image Removed: fmcc-20220331_g8.jpg]]
(1) 30-year PMMS interest rates are as of the last week in each quarter. SOFR
interest rates are 30-day average rates.
n The 30-year
of what a consumer could expect to be offered on a first-lien prime conventional
conforming home purchase mortgage with an LTV of 80%. Increases (decreases) in
the PMMS rate typically result in decreases (increases) in refinancing activity
and total originations.
n Changes in benchmark interest rates can significantly affect our financial
position and results of operations, including our net interest income and the
fair value of our financial instruments. We have elected hedge accounting for
certain assets and liabilities in an effort to reduce GAAP earnings variability
attributable to changes in benchmark interest rates.
Unemployment Rate and Monthly
[[Image Removed: fmcc-20220331_g9.jpg]]Source:
n Changes in the national unemployment rate can affect several market factors,
including the demand for single-family and multifamily housing and loan
delinquency rates.
n The unemployment rate fell to 3.6% as of
2021
as many workers have yet to re-enter the labor market after their initial exit.
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Management's Discussion and Analysis Market Conditions and Economic Indicators
U.S. Single-Family Home Sales and House Prices
[[Image Removed: fmcc-20220331_g10.jpg]]Sources:
Realtors
U.S. Single-Family Mortgage Originations
(UPB in billions)
[[Image Removed: fmcc-20220331_g11.jpg]]
Source: Inside Mortgage Finance. 1Q 2022 U.S. single-family mortgage
originations data is not yet available.
n Home sales decreased in 1Q 2022. We expect home sales in 2022 to decline
compared to 2021 as higher mortgage interest rates and house prices offset the
strong demand for housing.
n Single-family house prices increased 5.0% during 1Q 2022, compared to an
increase of 4.3% during 1Q 2021. Although supply constraints could continue to
exert pressure on house prices, we expect house price growth to moderate during
the remainder of 2022.
n
2021 from
and increasing house prices. We expect total originations to decrease in 2022
primarily due to a decrease in refinance originations driven by higher mortgage
interest rates.
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Management's Discussion and Analysis Market Conditions and Economic Indicators
Apartment Vacancy Rates and Change in Effective Rents
[[Image Removed: fmcc-20220331_g12.jpg]]Source: Reis and
Apartment Completions and Net Absorption
(Units in thousands)
[[Image Removed: fmcc-20220331_g13.jpg]]
Source: For 1Q21 - 4Q21, "Reis National Performance Trends Report." For
1Q22,"Reis 1Q 2022 Construction First Glance." 1Q22 net absorption data is not
yet available.
n Vacancy rates continued to decrease during 1Q 2022. The decrease in vacancy
rates was driven by higher demand for rental housing as a result of improving
economic conditions, changing migration patterns, and rising home prices.
n Effective rent growth (i.e., the average rent paid by the renter over the
term of the lease, adjusted for concessions by the property owner and costs
borne by the renter) was positive at the national level and in most major
geographic markets in 1Q 2022, increasing 15.6% over the past year.
n Multifamily property prices grew 4.2% in 1Q 2022 and 22.4% over the past
year, as the overall investment environment remained attractive given the
multifamily market's strong performance and its lower sensitivity to inflation
relative to most other asset classes.
n Completions decreased in 1Q 2022 due to supply chain delays and labor
shortages.
n While final unit counts are not yet available, we expect net absorptions to
have increased during 1Q 2022 driven by improving economic conditions, pent-up
demand, increasing house prices, and rising income levels. We further expect net
absorptions to exceed completions for 1Q 2022.
Freddie Mac 1Q 2022 Form 10-Q 6
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Management's Discussion and Analysis Market Conditions and Economic Indicators
Mortgage Debt Outstanding
Single-Family Mortgage Debt Outstanding
(UPB in billions)
[[Image Removed: fmcc-20220331_g14.jpg]]Source: Federal Reserve Financial
Accounts of
debt outstanding data is not yet available.
Multifamily Mortgage Debt Outstanding
(UPB in billions)
[[Image Removed: fmcc-20220331_g15.jpg]]Source: Federal Reserve Financial
Accounts of
outstanding data is not yet available.
n
primarily driven by house price appreciation and first-time homebuyers, and is
expected to continue to increase during 2022. An increase in
mortgage debt outstanding typically results in the growth of our Single-Family
mortgage portfolio.
n Our share of multifamily mortgage debt outstanding increased slightly in 4Q
2021 as we accounted for a larger share of total multifamily mortgage debt
origination volume. This growth in our share of debt origination volume was
driven by our significant 4Q 2021 new business activity.
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Management's Discussion and Analysis Market Conditions and Economic Indicators
Delinquency Rates
Single-Family Serious Delinquency Rates
[[Image Removed: fmcc-20220331_g16.jpg]]
Source:
2022 total mortgage market rate is not yet available.
Multifamily Delinquency Rates
[[Image Removed: fmcc-20220331_g17.jpg]]Source:
Banking Profile,
CMBS market, excluding REOs),
2022 delinquency rates for
bulletin are not yet available.
n Our Single-Family serious delinquency rate is based on the number of loans in
our Single-Family mortgage portfolio that are three monthly payments or more
past due or in the process of foreclosure.
n Our Single-Family serious delinquency rate declined quarter-over-quarter and
year-over-year, due primarily to borrowers exiting forbearance and completing
loan workout activities that return their mortgages to current status.
n Our Multifamily delinquency rate is based on the UPB of loans in our
Multifamily mortgage portfolio that are two monthly payments or more past due or
in the process of foreclosure.
n Our Multifamily delinquency rate returned to pre-pandemic levels and remains
low compared to many other market participants.
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Management's Discussion and Analysis Consolidated Results of Operations
CONSOLIDATED RESULTS OF OPERATIONS
The discussion of our consolidated results of operations should be read in
conjunction with our condensed consolidated financial statements and
accompanying notes.
The table below compares our summarized consolidated results of operations.
Certain amounts in the prior period have been reclassified to conform to the
current presentation. See Note 1 for additional information about the prior
period reclassifications.
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