A historically high share of first-time buyer loans bolstered Freddie Mac’s purchases in the challenging initial quarter of the year compared to the same period in 2023, but its volume and earnings came in lower than in the final three months of last year.
Freddie’s results contrasted competitor Fannie Mae’s, which showed the latter’s loan volume hit a multi-decade low during the quarter. However, Fannie still eked out an earnings gain on both the quarter and the year due to guarantee fee increases and other offsetting business strengths.
Freddie, which is the smaller of the two influential government-sponsored enterprises, earned $2.8 billion during the first three months of 2024, down slightly compared to $2.9 billion the previous quarter but up 39% from $2 billion a year earlier.
It generated $62 billion in new single-family business activity during the quarter, compared to $73 billion the previous fiscal period and $59 billion 12 months prior.
The equivalent numbers in multifamily were $9 billion in the first quarter compared to $16 billion in the final fiscal period of 2023 and just $6 billion in the initial three months of last year.
Chris Lown, Freddie Mac’s chief financial officer said in an earnings call on Wednesday that entry-level home purchasers accounted for the bulk of its new loan volume during the period, and a record for first-time home buyers indicates a strength the enterprise plans to build on in the future.
“First-time homebuyers represented 52% of new single-family home purchase loans. That’s a new high for us. We are working to extend these opportunities to more borrowers,” he said.
Fannie Mae’s entry-level purchaser share for the quarter was 45%. Fannie officials said in a call Tuesday that they’re working to focus more on a particularly underserved subset of that group, first-generation buyers, as part of its version of a plan both GSEs must draw up to with the aim of reducing racial inequities.
Freddie’s adjustments related to credit were a little less favorable than Fannie’s during the quarter. While Fannie recorded a $180 million benefit for credit losses in the period, Freddie reported a nearly equal provision for them.
“Our provision for credit losses was $181 million for this quarter, driven by modest credit reserve bills in both business segments, compared to a higher provision expense of $395 million for the prior year quarter, which was primarily attributable to new acquisitions in that period,” Lown said.
Freddie noted that while delinquency rates overall remain historically low, they have been inching up in multifamily, rising to 34 basis points from 28 the previous quarter and 13 a year earlier.
“This increase was primarily driven by delinquency and our floating rate loans and small business loans portfolio. Ninety-four percent of these delinquent loans had credit enhancement coverage,” Lown said.
Efforts are underway to improve underwriting discipline in Freddie’s multifamily unit, he added.
“We recently announced multifamily policy and process changes, including enhanced property inspection requirements and appraisal reviews that further strengthen our underwriting due diligence and risk mitigation,” said Lown.
Echoing Fannie, Freddie also touted initiatives around building value for its mortgage-backed securities through features aimed at attracting buyers in the environmental, social and governance market, and closing cost aid for borrowers making 50% of the area median.
