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 and nine months ended
Statements.
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-20220930_g2.jpg]]
Net Worth
(In billions)
[[Image Removed: fmcc-20220930_g3.jpg]]
n Net income was
primarily driven by a credit reserve build in Single-Family.
n Net revenues were
interest income in Single-Family was offset by a decline in non-interest income
in Multifamily.
n Net worth was
as of
increases in net worth have been, or will be, added to the aggregate liquidation
preference of the senior preferred stock. The liquidation preference of the
senior preferred stock was
increase to
worth in 3Q 2022.
Market Liquidity
Market Liquidity
(In thousands)
[[Image Removed: fmcc-20220930_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 3Q 2022, which enabled the financing of 542,000 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-20220930_g5.jpg]]
n Our mortgage portfolio increased 10% year-over-year to
by an 11% increase in our Single-Family mortgage portfolio and a 3% increase in
our Multifamily mortgage portfolio.
l The growth in our Single-Family mortgage portfolio was primarily driven by an
increase in average portfolio loan size and a higher share of single-family
mortgage debt outstanding. The increase in the average portfolio loan size was
driven by house price appreciation in recent quarters, which contributed to new
business acquisitions having a larger loan size compared to older vintages that
continued to run off.
l Our Multifamily mortgage portfolio increased as new business activities were
partially offset by borrower prepayments.
Credit Risk Transfer
Single-Family Mortgage Portfolio with Credit Enhancement
(UPB in billions)
[[Image Removed: fmcc-20220930_g6.jpg]]
Multifamily Mortgage Portfolio with Credit Enhancement
(UPB in billions)
[[Image Removed: fmcc-20220930_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 3Q 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. Certain market and macroeconomic prior period data have been
updated to reflect revised historical data.
Interest Rates(1)
Quarterly Ending Rates [[Image Removed: fmcc-20220930_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-20220930_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 3.5% as of
3.8 million non-farm payroll jobs from
after seasonal adjustment.
Freddie Mac 3Q 2022 Form 10-Q 4
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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-20220930_g10.jpg]]
Sources: National Association of Realtors , U.S. Census Bureau , and Freddie Mac
House Price Index.
U.S. Single-Family Mortgage Originations
(UPB in billions)
[[Image Removed: fmcc-20220930_g11.jpg]]
Source: Inside Mortgage Finance. 3Q 2022 U.S. single-family mortgage
originations data is not yet available.
n Home sales decreased in 3Q 2022 compared to 3Q 2021 due to the substantial
increase in mortgage interest rates.
n Single-family house prices decreased 2.2% during 3Q 2022, compared to an
increase of 3.4% during 3Q 2021.
n
2022 from
and increasing house prices.
--------------------------------------------------------------------------------
Management's Discussion and Analysis Market Conditions and Economic Indicators
Apartment Vacancy Rates and Change in Effective Rents
[[Image Removed: fmcc-20220930_g12.jpg]]Source: Reis.
Apartment Completions and Net Absorption
(Units in thousands)
[[Image Removed: fmcc-20220930_g13.jpg]]
Source: Reis.
n Vacancy rates continued to decrease during 3Q 2022. The decrease in vacancy
rates was driven by ongoing demand resulting from the rising cost of
single-family home ownership and a strong labor market.
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) increased at the national level and in most major
geographic markets in 3Q 2022. While rent growth increased 10.7% over the past
year, it has begun to decelerate and is expected to continue to moderate over
the near term due to slower economic growth.
n Net absorptions have decreased from the cyclical highs seen earlier in the
year. Meanwhile, completions have been relatively constrained during 3Q 2022 but
are expected to increase in the future.
Freddie Mac 3Q 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-20220930_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-20220930_g15.jpg]]Source: Federal Reserve Financial
Accounts of
outstanding data is not yet available.
n
primarily driven by house price appreciation in recent quarters and first-time
homebuyers. An increase in
typically results in the growth of our Single-Family mortgage portfolio.
n Our share of multifamily mortgage debt outstanding decreased in 2Q 2022 as we
accounted for a smaller share of total multifamily mortgage debt origination
volume. This reduction in our share of mortgage debt origination volume was
driven by significant competition during 2Q 2022.
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Management's Discussion and Analysis Market Conditions and Economic Indicators
Delinquency Rates
Single-Family Serious Delinquency Rates
[[Image Removed: fmcc-20220930_g16.jpg]]
Source:
2022 total mortgage market rate is not yet available.
Multifamily Delinquency Rates
[[Image Removed: fmcc-20220930_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 year-over-year primarily
due 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 increased slightly year-over-year and also
increased quarter-over-quarter. The quarter-over-quarter increase was primarily
due to delinquencies related to two loan pools having a common sponsor. The
loans in these two pools are included in K Certificates with subordination.
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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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