Table 1 - Summary of Consolidated Results of Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Change | | | | | Change |
| (Dollars in millions) | | 2Q 2022 | 2Q 2021 | | $ | % | | YTD 2022 | YTD 2021 | | $ | % |
Net interest income | | $4,759 | | $4,767 | | | ($8) | | — | % | | $8,863 | | $8,406 | | | $457 | | 5 | % |
| Guarantee income | | 205 | | 356 | | | (151) | | (42) | | | 275 | | 604 | | | (329) | | (54) | |
Investment gains (losses), net | | 321 | | 636 | | | (315) | | (50) | | | 1,834 | | 1,844 | | | (10) | | (1) | |
Other income (loss) | | 119 | | 107 | | | 12 | | 11 | | | 278 | | 285 | | | (7) | | (2) | |
| Net revenues | | 5,404 | | 5,866 | | | (462) | | (8) | | | 11,250 | | 11,139 | | | 111 | | 1 | |
| Benefit (provision) for credit losses | | (307) | | 740 | | | (1,047) | | (141) | | | 530 | | 936 | | | (406) | | (43) | |
| Salaries and employee benefits | | (376) | | (346) | | | (30) | | (9) | | | (732) | | (690) | | | (42) | | (6) | |
| Credit enhancement expense | | (558) | | (369) | | | (189) | | (51) | | | (1,017) | | (704) | | | (313) | | (44) | |
| Benefit for (decrease in) credit enhancement recoveries | | (1) | | (193) | | | 192 | | 99 | | | (18) | | (450) | | | 432 | | 96 | |
| Legislative assessments expense | | (748) | | (696) | | | (52) | | (7) | | | (1,507) | | (1,387) | | | (120) | | (9) | |
| Other expense | | (337) | | (365) | | | 28 | | 8 | | | (678) | | (726) | | | 48 | | 7 | |
| Non-interest expense | | (2,020) | | (1,969) | | | (51) | | (3) | | | (3,952) | | (3,957) | | | 5 | | — | |
| Income (loss) before income tax (expense) benefit | | 3,077 | | 4,637 | | | (1,560) | | (34) | | | 7,828 | | 8,118 | | | (290) | | (4) | |
| Income tax (expense) benefit | | (624) | | (958) | | | 334 | | 35 | | | (1,577) | | (1,672) | | | 95 | | 6 | |
| Net income (loss) | | 2,453 | | 3,679 | | | (1,226) | | (33) | | | 6,251 | | 6,446 | | | (195) | | (3) | |
| Other comprehensive income (loss), net of taxes and reclassification adjustments | | (66) | | (68) | | | 2 | | 3 | | | (186) | | (457) | | | 271 | | 59 | |
| Comprehensive income (loss) | | $2,387 | | $3,611 | | | ($1,224) | | (34) | % | | $6,065 | | $5,989 | | | $76 | | 1 | % |
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 9 |
| | | | | | | | |
| Management's Discussion and Analysis | | Consolidated Results of Operations |
Net Revenues
The table below presents the components of net interest income.
Table 2 - Components of Net Interest Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Change | | | | | Change | |
| (Dollars in millions) | | 2Q 2022 | 2Q 2021 | | $ | % | | YTD 2022 | YTD 2021 | | $ | % | |
| Guarantee net interest income: | | | | | | | | | | | | | |
Contractual net interest income(1) | | $3,468 | | $2,669 | | | $799 | | 30 | % | | $6,802 | | $5,017 | | | $1,785 | | 36 | % | |
| Deferred fee income | | 944 | | 1,723 | | | (779) | | (45) | | | 1,986 | | 2,774 | | | (788) | | (28) | | |
| Total guarantee net interest income | | 4,412 | | 4,392 | | | 20 | | — | | | 8,788 | | 7,791 | | | 997 | | 13 | | |
| Investments net interest income | | 693 | | 827 | | | (134) | | (16) | | | 1,272 | | 1,776 | | | (504) | | (28) | | |
| Income (expense) from hedge accounting | | (346) | | (452) | | | 106 | | 23 | | | (1,197) | | (1,161) | | | (36) | | (3) | | |
| Net interest income | | $4,759 | | $4,767 | | | ($8) | | — | % | | $8,863 | | $8,406 | | | $457 | | 5 | % | |
(1)Includes majority of amounts previously presented as net interest income related to the legislated guarantee fees. Prior period amounts have been reclassified to conform to the current period presentation.
Key Drivers:
n Guarantee net interest income
l 2Q 2022 vs. 2Q 2021 and YTD 2022 vs. YTD 2021 - Increased primarily driven by continued mortgage portfolio growth and higher average portfolio guarantee fee rates, partially offset by lower deferred fee income, which was driven by slower prepayments as a result of higher mortgage interest rates.
n Investments net interest income
l 2Q 2022 vs. 2Q 2021 and YTD 2022 vs. YTD 2021 - Decreased primarily due to a decline in the size of the mortgage-related investments portfolio.
n Income (expense) from hedge accounting
l 2Q 2022 vs. 2Q 2021 - Expense decreased primarily due to lower amortization of hedge accounting-related basis adjustments driven by a lower unamortized balance, partially offset by accruals of periodic cash settlements on derivatives in hedging relationships.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 10 |
| | | | | | | | |
| Management's Discussion and Analysis | | Consolidated Results of Operations |
Net Interest Yield Analysis The table below presents a yield analysis of interest-earning assets and interest-bearing liabilities.
Table 3 - Analysis of Net Interest Yield | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2Q 2022 | | 2Q 2021 | | | | | | |
| (Dollars in millions) | | Average Balance | Interest Income (Expense) | Average Rate | | Average Balance | Interest Income (Expense) | Average Rate | | | | | | |
| Interest-earning assets: | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $14,628 | | $16 | | 0.42 | % | | $120,325 | | $1 | | — | % | | | | | | |
| Securities purchased under agreements to resell | | 97,150 | | 186 | | 0.77 | | | 29,276 | | 4 | | 0.05 | | | | | | | |
| Investment securities | | 50,655 | | 464 | | 3.66 | | | 58,068 | | 617 | | 4.26 | | | | | | | |
Mortgage loans(1) | | 2,953,930 | | 19,324 | | 2.62 | | | 2,568,878 | | 14,590 | | 2.27 | | | | | | | |
| Other assets | | 4,250 | | 18 | | 1.71 | | | 5,388 | | 18 | | 1.29 | | | | | | | |
| Total interest-earning assets | | 3,120,613 | | 20,008 | | 2.56 | | | 2,781,935 | | 15,230 | | 2.19 | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | |
| Debt of consolidated trusts | | 2,903,912 | | (14,595) | | (2.01) | | | 2,479,641 | | (10,032) | | (1.62) | | | | | | | |
| Debt of Freddie Mac | | 174,018 | | (654) | | (1.50) | | | 255,905 | | (431) | | (0.67) | | | | | | | |
| Total interest-bearing liabilities | | 3,077,930 | | (15,249) | | (1.98) | | | 2,735,546 | | (10,463) | | (1.53) | | | | | | | |
| Impact of net non-interest-bearing funding | | 42,683 | | — | | 0.03 | | | 46,389 | | — | | 0.03 | | | | | | | |
| Total funding of interest-earning assets | | 3,120,613 | | (15,249) | | (1.95) | | | 2,781,935 | | (10,463) | | (1.50) | | | | | | | |
| Net interest income/yield | | | $4,759 | | 0.61 | % | | | $4,767 | | 0.69 | % | | | | | | |
| | | | | | | | | | | | | | |
(1)Loan fees included in net interest income were $0.4 billion and $0.8 billion during 2Q 2022 and 2Q 2021, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | YTD 2022 | | YTD 2021 |
| (Dollars in millions) | | Average Balance | Interest Income (Expense) | Average Rate | | Average Balance | Interest Income (Expense) | Average Rate |
| Interest-earning assets: | | | | | | | | |
| Cash and cash equivalents | | $15,230 | | $19 | | 0.24 | % | | $92,734 | | $4 | | 0.01 | % |
| Securities purchased under agreements to resell | | 92,913 | | 209 | | 0.45 | | | 54,778 | | 21 | | 0.07 | |
| Investment securities | | 50,514 | | 848 | | 3.36 | | | 57,374 | | 1,227 | | 4.28 | |
Mortgage loans(1) | | 2,927,495 | | 36,634 | | 2.50 | | | 2,511,102 | 27,845 | 2.22 | |
| Other assets | | 4,892 | | 38 | | 1.53 | | | 5,495 | 35 | 1.28 | |
| Total interest-earning assets | | 3,091,044 | | 37,748 | | 2.44 | | | 2,721,483 | 29,132 | 2.14 | |
| Interest-bearing liabilities: | | | | | | | | |
| Debt of consolidated trusts | | 2,870,198 | | (27,844) | | (1.94) | | | 2,410,850 | | (19,788) | | (1.64) | |
| Debt of Freddie Mac | | 178,299 | | (1,041) | | (1.17) | | | 265,390 | | (938) | | (0.71) | |
| Total interest-bearing liabilities | | 3,048,497 | | (28,885) | | (1.89) | | | 2,676,240 | | (20,726) | | (1.55) | |
| Impact of net non-interest-bearing funding | | 42,547 | | — | | 0.03 | | | 45,243 | | — | | 0.03 | |
| Total funding of interest-earning assets | | 3,091,044 | | (28,885) | | (1.86) | | | 2,721,483 | | (20,726) | | (1.52) | |
| Net interest income/yield | | | $8,863 | | 0.58 | % | | | $8,406 | | 0.62 | % |
(1)Loan fees included in net interest income were $0.9 billion and $1.8 billion during YTD 2022 and YTD 2021, respectively.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 11 |
| | | | | | | | |
| Management's Discussion and Analysis | | Consolidated Results of Operations |
The table below presents the components of guarantee income.
Table 4 - Components of Guarantee Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Change | | | | | Change |
| (Dollars in millions) | | 2Q 2022 | 2Q 2021 | | $ | % | | YTD 2022 | YTD 2021 | | $ | % |
| Contractual guarantee fees | | $322 | | $304 | | | $18 | | 6 | % | | $640 | | $589 | | | $51 | | 9 | % |
| Guarantee obligation amortization | | 306 | | 288 | | | 18 | | 6 | | | 605 | | 560 | | | 45 | | 8 | |
| Guarantee asset fair value changes | | (423) | | (236) | | | (187) | | (79) | | | (970) | | (545) | | | (425) | | (78) | |
| Guarantee income | | $205 | | $356 | | | ($151) | | (42) | % | | $275 | | $604 | | | ($329) | | (54) | % |
Key Drivers:
n 2Q 2022 vs. 2Q 2021 and YTD 2022 vs. YTD 2021 - Decreased as continued growth in our Multifamily guarantee portfolio was offset by the impact of higher interest rates on the fair values of our guarantee assets.
Investment Gains (Losses), Net The table below presents the components of investment gains (losses), net.
Table 5 - Investment Gains (Losses), Net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Change | | | | | Change |
| (Dollars in millions) | | 2Q 2022 | 2Q 2021 | | $ | % | | YTD 2022 | YTD 2021 | | $ | % |
| Single-Family | | $232 | $137 | | $95 | 69 | % | | $1,484 | $437 | | $1,047 | | 240 | % |
| Multifamily | | 89 | | 499 | | | (410) | | (82) | | | 350 | | 1,407 | | | (1,057) | | (75) | |
| Investment gains (losses), net | | $321 | | $636 | | | ($315) | | (50) | % | | $1,834 | | $1,844 | | | ($10) | | (1) | % |
Key Drivers:
n 2Q 2022 vs. 2Q 2021 - Decreased primarily driven by lower gains in Multifamily due to lower margins on new loan purchases and securitizations.
n YTD 2022 vs. YTD 2021 - Decreased primarily driven by lower gains in Multifamily due to spread widening and lower margins on new loan purchases and securitizations. This was offset by higher gains in Single-Family due to mark-to-market gains on commitments to sell guaranteed mortgage-related securities used to economically hedge the securitization pipeline, as spreads on agency mortgage-related securities widened during YTD 2022.
Benefit (Provision) for Credit Losses
The table below presents the components of benefit (provision) for credit losses.
Table 6 - Benefit (Provision) for Credit Losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Change | | | | | Change |
| (Dollars in millions) | | 2Q 2022 | 2Q 2021 | | $ | % | | YTD 2022 | YTD 2021 | | $ | % |
| Single-Family | | ($298) | | $686 | | | ($984) | | (143) | % | | $533 | | $832 | | | ($299) | | (36) | % |
| Multifamily | | (9) | | 54 | | | (63) | | (117) | | | (3) | | 104 | | | (107) | | (103) | |
| Benefit (provision) for credit losses | | ($307) | | $740 | | | ($1,047) | | (141) | % | | $530 | | $936 | | | ($406) | | (43) | % |
Key Drivers:
n 2Q 2022 vs. 2Q 2021 - A provision for credit losses in 2Q 2022, primarily driven by portfolio growth and deterioration in forecasted economic conditions, compared to a benefit for credit losses in 2Q 2021, which was primarily driven by a reserve release due to observed house price appreciation and improving economic conditions.
n YTD 2022 vs. YTD 2021 - Benefit for credit losses decreased primarily due to portfolio growth and deterioration in forecasted economic conditions.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 12 |
| | | | | | | | |
| Management's Discussion and Analysis | | Consolidated Results of Operations |
Non-Interest Expense
Credit Enhancement Expense Key Drivers:
n 2Q 2022 vs. 2Q 2021 and YTD 2022 vs. YTD 2021 - Increased $0.2 billion and $0.3 billion, respectively, due to higher outstanding cumulative volumes of CRT transactions and higher spreads.
Legislative Assessments Expense Legislative assessments expense relates to two fees: (1) the legislated guarantee fees on single-family loans that we are required to remit to Treasury and (2) the fee imposed on Freddie Mac's total new business purchases that is allocated to the affordable housing funds and remitted to Treasury and HUD. The legislated guarantee fees relate to the 10 basis point increase in guarantee fees implemented at the direction of FHFA pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011 as extended by the Infrastructure Investment and Jobs Act. The affordable housing funds allocation relates to the GSE Act requirement to set aside in each fiscal year an amount equal to 4.2 basis points of each dollar of total new business purchases, and pay such amount to certain housing funds. We are prohibited from passing through the costs of the affordable housing funds allocation to the originators of the loans that we purchase.
The table below presents the components of legislative assessments expense.
Table 7 - Components of Legislative Assessments Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Change | | | | | Change |
| (Dollars in millions) | | 2Q 2022 | 2Q 2021 | | $ | % | | YTD 2022 | YTD 2021 | | $ | % |
| Legislated guarantee fees expense | | ($684) | | ($570) | | | ($114) | | (20) | % | | ($1,350) | | ($1,104) | | | ($246) | | (22) | % |
| Affordable housing funds allocation | | (64) | | (126) | | | 62 | | 49 | | | (157) | | (283) | | | 126 | | 45 | |
| Legislative assessments expense | | ($748) | | ($696) | | | ($52) | | (7) | % | | ($1,507) | | ($1,387) | | | ($120) | | (9) | % |
Key Drivers:
n 2Q 2022 vs. 2Q 2021 and YTD 2022 vs. YTD 2021 - Increased primarily due to higher legislated guarantee fees expense due to growth in our Single-Family mortgage portfolio, partially offset by lower affordable housing funds allocation primarily due to lower Single-Family new business activity.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 13 |
| | | | | | | | |
| Management's Discussion and Analysis | | Consolidated Balance Sheets Analysis |
CONSOLIDATED BALANCE SHEETS ANALYSIS
The table below compares our summarized condensed consolidated balance sheets.
Table 8 - Summarized Condensed Consolidated Balance Sheets | | | | | | | | | | | | | | | | | | | | |
| | | | | Change |
| (Dollars in millions) | | June 30, 2022 | December 31, 2021 | | $ | % |
| Assets: | | | | | | |
| Cash and cash equivalents | | $5,257 | | $10,150 | | | ($4,893) | | (48) | % |
| Securities purchased under agreements to resell | | 86,496 | | 71,203 | | | 15,293 | | 21 | |
| Subtotal | | 91,753 | | 81,353 | | | 10,400 | | 13 | |
| Investment securities, at fair value | | 48,937 | | 53,015 | | | (4,078) | | (8) | |
| Mortgage loans, net | | 2,966,864 | | 2,848,109 | | | 118,755 | | 4 | |
| Accrued interest receivable, net | | 7,871 | | 7,474 | | | 397 | | 5 | |
| Deferred tax assets, net | | 5,552 | | 6,214 | | | (662) | | (11) | |
| Other assets | | 24,604 | | 29,421 | | | (4,817) | | (16) | |
| Total assets | | $3,145,581 | | $3,025,586 | | | $119,995 | | 4 | % |
| | | | | | |
| Liabilities and Equity: | | | | | | |
| Liabilities: | | | | | | |
| Accrued interest payable | | $6,594 | | $6,268 | | | $326 | | 5 | % |
| Debt | | 3,093,178 | | 2,980,185 | | | 112,993 | | 4 | |
| Other liabilities | | 11,711 | | 11,100 | | | 611 | | 6 | |
| Total liabilities | | 3,111,483 | | 2,997,553 | | | 113,930 | | 4 | |
| Total equity | | 34,098 | | 28,033 | | | 6,065 | | 22 | |
| Total liabilities and equity | | $3,145,581 | | $3,025,586 | | | $119,995 | | 4 | % |
Key Drivers:
As of June 30, 2022 compared to December 31, 2021:
n Cash and cash equivalents and securities purchased under agreements to resell increased on a combined basis primarily due to sales of mortgage-related and Treasury securities and cash window funding volume that was lower than forecasted, partially offset by a decrease in trust cash driven by lower loan prepayments.
n Mortgage loans, net and debt increased primarily due to the increase in the size of the Single-Family mortgage portfolio.
n Other assets decreased primarily due to lower servicer receivables driven by a decrease in loan prepayments.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 14 |
| | | | | | | | |
| Management's Discussion and Analysis | | Our Portfolios |
OUR PORTFOLIOS
The table below presents the UPB of our mortgage portfolio by segment.
Table 9 - Mortgage Portfolio
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| (In millions) | | Single-Family | Multifamily | Total | | Single-Family | Multifamily | Total |
| Securitized mortgage loans: | | | | | | | | |
| Held by consolidated trusts | | $2,846,616 | $23,617 | $2,870,233 | | $2,706,514 | $18,757 | $2,725,271 |
| Held by nonconsolidated trusts | | 32,335 | 364,977 | 397,312 | | 33,340 | 362,627 | 395,967 |
| Total securitized mortgage loans | | 2,878,951 | | 388,594 | | 3,267,545 | | | 2,739,854 | | 381,384 | | 3,121,238 | |
| Unsecuritized mortgage loans: | | | | | | | | |
| Securitization pipeline and other loans | | 13,658 | | 16,270 | | 29,928 | | | 21,189 | | 22,771 | | 43,960 | |
| Seasoned loans | | 25,359 | | — | | 25,359 | | | 20,594 | | — | | 20,594 | |
| Total unsecuritized mortgage loans | | 39,017 | | 16,270 | | 55,287 | | | 41,783 | | 22,771 | | 64,554 | |
| Other | | 9,961 | | 10,191 | | 20,152 | | | 10,587 | | 10,508 | | 21,095 | |
| Total mortgage portfolio | | $2,927,929 | | $415,055 | | $3,342,984 | | | $2,792,224 | | $414,663 | | $3,206,887 | |
The table below presents the UPB of our guarantee portfolio by segment.
Table 10 - Guarantee Portfolio | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| (In millions) | | Single-Family | Multifamily | Total | | Single-Family | Multifamily | Total |
| Guaranteed mortgage-related securities: | | | | | | | | |
| Issued by consolidated trusts | | $2,865,017 | | $23,798 | | $2,888,815 | | | $2,744,899 | | $18,883 | | $2,763,782 | |
| Issued by nonconsolidated trusts | | 26,508 | | 321,811 | | 348,319 | | | 27,538 | | 318,756 | | 346,294 | |
| Total guaranteed mortgage-related securities | | 2,891,525 | | 345,609 | | 3,237,134 | | | 2,772,437 | | 337,639 | | 3,110,076 | |
| Other | | 9,961 | | 10,191 | | 20,152 | | | 10,587 | | 10,508 | | 21,095 | |
| Total guarantee portfolio | | $2,901,486 | | $355,800 | | $3,257,286 | | | $2,783,024 | | $348,147 | | $3,131,171 | |
Our investments portfolio consists of our mortgage-related investments portfolio and our other investments portfolio.
Mortgage-Related Investments Portfolio
The Purchase Agreement limits the size of our mortgage-related investments portfolio to a maximum amount of $250 billion, which will be reduced to $225 billion on December 31, 2022. The calculation of mortgage assets subject to the Purchase Agreement cap includes the UPB of mortgage assets and 10% of the notional value of interest-only securities. We are also subject to additional limitations on the size and composition of our mortgage-related investments portfolio pursuant to FHFA guidance. For additional information on the restrictions on our mortgage-related investments portfolio, see the Conservatorship and Related Matters section in our 2021 Annual Report.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 15 |
| | | | | | | | |
| Management's Discussion and Analysis | | Our Portfolios |
The table below presents the details of our mortgage-related investments portfolio.
Table 11 - Mortgage-Related Investments Portfolio
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| (In millions) | | Single-Family | Multifamily | Total | | Single-Family | Multifamily | Total |
| Unsecuritized mortgage loans | | $39,017 | | $16,270 | | $55,287 | | | $41,783 | | $22,771 | | $64,554 | |
| Mortgage-related securities | | 21,161 | | 4,398 | | 25,559 | | | 43,357 | | 3,100 | | 46,457 | |
| Mortgage-related investments portfolio | | $60,178 | | $20,668 | | $80,846 | | | $85,140 | | $25,871 | | $111,011 | |
10% of notional amount of interest-only
securities | | | | $22,668 | | | | | $12,517 | |
Mortgage-related investments portfolio for
purposes of Purchase Agreement cap | | | | 103,514 | | | | | 123,528 | |
Other Investments Portfolio
The table below presents the details of our other investments portfolio.
Table 12 - Other Investments Portfolio | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| (In millions) | | Liquidity and Contingency Operating Portfolio | Custodial Account | Other | Total Other Investments Portfolio (1) | | Liquidity and Contingency Operating Portfolio | Custodial Account | Other | Total Other Investments Portfolio (1) |
| Cash and cash equivalents | | $4,401 | | $756 | | $100 | | $5,257 | | | $8,455 | | $1,596 | | $99 | | $10,150 | |
Securities purchased under agreements to resell | | 76,963 | | 18,400 | | 1,110 | | 96,473 | | | 43,729 | | 34,000 | | 807 | | 78,536 | |
| Non-mortgage-related securities | | 28,350 | | — | | 3,010 | | 31,360 | | | 28,078 | | — | | 4,695 | | 32,773 | |
| Other assets | | — | | — | | 6,780 | | 6,780 | | | — | | — | | 8,194 | | 8,194 | |
| Other investments portfolio | | $109,714 | | $19,156 | | $11,000 | | $139,870 | | | $80,262 | | $35,596 | | $13,795 | | $129,653 | |
(1)Represents carrying value.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 16 |
| | | | | | | | |
| Management's Discussion and Analysis | | Our Business Segments |
OUR BUSINESS SEGMENTS
As shown in the table below, we have two reportable segments, which are based on the way we manage our business.
| | | | | |
| Segment | Description |
| Single-Family | Reflects results from our purchase, securitization, and guarantee of single-family loans, our investments in single-family loans and mortgage-related securities, the management of Single-Family mortgage credit risk and market risk, and any results of our treasury function that are not allocated to each segment. |
|
|
| Multifamily | Reflects results from our purchase, securitization, and guarantee of multifamily loans, our investments in multifamily loans and mortgage-related securities, and the management of Multifamily mortgage credit risk and market risk. |
|
|
Segment Net Revenues and Net Income (Loss) The graphs below show our net revenues and net income (loss) by segment.
Segment Net Revenues
(In billions)
Segment Net Income (Loss)
(In billions)
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 17 |
| | | | | |
| Management's Discussion and Analysis | Our Business Segments | Single-Family |
Single-Family
The graphs, tables, and related discussion below present the business results of our Single-Family segment.
UPB of Single-Family Loan Purchases and Guarantees by Loan Purpose and Average Guarantee Fee Rate(1) Charged on New Acquisitions
(UPB in billions, guarantee fee rate in bps) 
(1)Guarantee fee rate calculation excludes the legislated guarantee fees and includes deferred fees recognized over the estimated life of the related loans.
Number of Families Helped to Own a Home and Average Loan UPB of New Acquisitions
(Loan count in thousands)
n 2Q 2022 vs. 2Q 2021 and YTD 2022 vs. YTD 2021
l Our loan purchase and guarantee activity decreased as refinance activity slowed significantly due to higher mortgage interest rates. We expect volume for the remainder of the year to be lower than 2021 due in part to higher mortgage interest rates.
l The average loan size of new acquisitions increased due to a higher conforming loan limit and house price appreciation.
l The average guarantee fee rate charged on new acquisitions increased in 2Q 2022 compared to 2Q 2021 primarily due to higher credit fees for certain high balance loans and second home loans we began to charge in April 2022.
l We manage our new acquisitions in accordance with our risk limits and guidance from FHFA, including certain thresholds established by FHFA based on the ERCF framework. This may affect the volume and characteristics of our loan acquisitions.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 18 |
| | | | | |
| Management's Discussion and Analysis | Our Business Segments | Single-Family |
Single-Family Mortgage Portfolio Single-Family Mortgage Portfolio and Average Guarantee Fee Rate(1) Charged on Mortgage Portfolio
(UPB in billions, guarantee fee rate in bps)
(1)Guarantee fee rate calculation excludes the legislated guarantee fees. Guarantee fee rate calculation also excludes certain loans, the majority of which are held by VIEs that we do not consolidate. The UPB of these excluded loans was $45 billion as of June 30, 2022.
Single-Family Mortgage Loans
(Loan count in millions)
n Our Single-Family mortgage portfolio grew $364 billion, or 14%, year-over-year, primarily driven by an increase in average portfolio loan size and a higher share of the overall market. The increase in the average portfolio loan size was driven by house price appreciation contributing to new business acquisitions having a larger loan size compared to older vintages that continued to run off.
n The average guarantee fee rate charged on our Single-Family mortgage portfolio increased year-over-year as older vintages with lower charged guarantee fee rates were replaced by acquisitions of new loans with higher charged guarantee fee rates.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 19 |
| | | | | |
| Management's Discussion and Analysis | Our Business Segments | Single-Family |
We transfer credit risk on a portion of our Single-Family mortgage portfolio to the private market, reducing the risk of future losses to us when borrowers default. The graphs below show the issuance amounts associated with CRT transactions for loans in our Single-Family mortgage portfolio.
UPB Covered by New CRT Issuance New CRT Issuance Maximum Coverage
(In billions) (In billions)
n 2Q 2022 vs. 2Q 2021 and YTD 2022 vs. YTD 2021
l The percentage of our Single-Family acquisitions targeted for CRT transactions (primarily 30-year fixed rate loans with LTV ratios between 60% and 97%) increased to 73% and 70% during 2Q 2022 and YTD 2022, respectively, from 61% during the 2021 periods, primarily driven by higher LTV ratios of recently acquired loans and an increase in the percentage of 30-year loan acquisitions.
l The UPB of mortgage loans covered by CRT transactions issued during the 2022 periods decreased compared to the 2021 periods due to a decrease in loan acquisition activity in recent quarters. The related maximum coverage increased as we obtained a higher amount of credit coverage on the recently acquired loans in response to higher capital requirements under the ERCF.
See MD&A - Risk Management - Single-Family Mortgage Credit Risk - Transferring Credit Risk to Third-Party Investors for additional information on our CRT activities and other credit enhancements. See MD&A - Liquidity and Capital Resources - Capital Resources for additional information on the ERCF.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 20 |
| | | | | |
| Management's Discussion and Analysis | Our Business Segments | Single-Family |
Loss Mitigation Activities The following graph provides details about the single-family loan workout activities that were completed during the period. The forbearance data included below is limited to loans in forbearance that are past due based on the loans' original contractual terms and excludes both loans for which we do not control servicing and loans included in certain legacy transactions, as the forbearance data for such loans is either not reported to us by the servicers or is otherwise not readily available to us.
Completed Loan Workout Activity
(UPB in billions, number of loan workouts in thousands)
(1)Other includes repayment plans and foreclosure alternatives.
n Completed loan workout activity includes forbearance plans where borrowers fully reinstated the loan to current status during or at the end of the forbearance period, payment deferral plans, loan modifications, successfully completed repayment plans, short sales, and deeds in lieu of foreclosure. Completed loan workout activity excludes active loss mitigation activity that was ongoing and had not been completed as of the end of the quarter, such as forbearance plans that had been initiated but not completed and trial period modifications. There were approximately 36,000 loans in active forbearance plans and 15,000 loans in other active loss mitigation activity as of June 30, 2022.
n 2Q 2022 vs. 2Q 2021 and YTD 2022 vs. YTD 2021 - Our loan workout activity decreased as the overall forbearance population continued to decline.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 21 |
| | | | | |
| Management's Discussion and Analysis | Our Business Segments | Single-Family |
The table below presents the components of net income and comprehensive income for our Single-Family segment.
Table 13 - Single-Family Segment Financial Results | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Change | | | | | Change |
| (Dollars in millions) | | 2Q 2022 | 2Q 2021 | | $ | % | | YTD 2022 | YTD 2021 | | $ | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Net interest income | | $4,535 | | $4,460 | | | $75 | | 2 | % | | $8,341 | | $7,768 | | | $573 | | 7 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Non-interest income | | 336 | | 255 | | | 81 | | 32 | | | 1,744 | | 796 | | | 948 | | 119 | |
| Net revenues | | 4,871 | | 4,715 | | | 156 | | 3 | | | 10,085 | | 8,564 | | | 1,521 | | 18 | |
| Benefit (provision) for credit losses | | (298) | | 686 | | | (984) | | (143) | | | 533 | | 832 | | | (299) | | (36) | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Non-interest expense | | (1,854) | | (1,803) | | | (51) | | (3) | | | (3,632) | | (3,612) | | | (20) | | (1) | |
| Income (loss) before income tax (expense) benefit | | 2,719 | | 3,598 | | | (879) | | (24) | | | 6,986 | | 5,784 | | | 1,202 | | 21 | |
| Income tax (expense) benefit | | (551) | | (743) | | | 192 | | 26 | | | (1,407) | | (1,191) | | | (216) | | (18) | |
| Net income (loss) | | 2,168 | | 2,855 | | | (687) | | (24) | | | 5,579 | | 4,593 | | | 986 | | 21 | |
| Other comprehensive income (loss), net of taxes and reclassification adjustments | | 5 | | (74) | | | 79 | | 107 | | | (7) | | (402) | | | 395 | | 98 | |
| Comprehensive income (loss) | | $2,173 | | $2,781 | | | ($608) | | (22) | % | | $5,572 | | $4,191 | | | $1,381 | | 33 | % |
Key Business Drivers:
n 2Q 2022 vs. 2Q 2021 and YTD 2022 vs. YTD 2021
l A provision for credit losses in 2Q 2022, primarily driven by portfolio growth and deterioration in forecasted economic conditions, compared to a benefit for credit losses in 2Q 2021, which was primarily driven by a reserve release due to observed house price appreciation and improving economic conditions. The lower benefit for credit losses for YTD 2022 compared to YTD 2021 was driven by the same factors.
l Higher net interest income primarily due to continued mortgage portfolio growth and higher average portfolio guarantee fee rates, partially offset by lower deferred fee income, which was driven by slower prepayments as a result of higher mortgage interest rates.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 22 |
| | | | | | | | |
| Management's Discussion and Analysis | | Our Business Segments | Multifamily |
Multifamily
The graphs, tables, and related discussion below present the business results of our Multifamily segment.
New Business Activity
(In billions)
Total Number of Units Financed
(In thousands)
n As of June 30, 2022, the total multifamily new business activity subject to the FHFA 2022 loan purchase cap of $78 billion was $29.6 billion. Approximately 75% of this activity, based on UPB, was mission-driven, affordable housing, with approximately 42% being affordable to renters at or below 60% of AMI, both currently exceeding FHFA's minimum requirements (50% and 25%, respectively).
n While our new business activity was higher year-over-year, ongoing competition from other market participants and rising interest rates are expected to negatively impact our new business activities for the remainder of 2022.
n Outstanding commitments, including index lock agreements and commitments to purchase or guarantee multifamily assets, were $19.4 billion and $18.7 billion as of June 30, 2022 and June 30, 2021, respectively.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 23 |
| | | | | | | | |
| Management's Discussion and Analysis | | Our Business Segments | Multifamily |
Multifamily Mortgage Portfolio and Guarantee Portfolio
Mortgage Portfolio
(In billions)
Guarantee Portfolio
(In billions) 
n Our Multifamily mortgage and guarantee portfolios increased year-over-year primarily due to ongoing loan purchase and securitization activities.
n While the mortgage portfolio increased year-over-year, total portfolio unit count decreased, primarily driven by the impact of portfolio payoffs and higher average per unit costs of newly financed multifamily properties as a result of property price appreciation.
n In addition to our Multifamily mortgage portfolio, we own equity interests in LIHTC fund partnerships with carrying values totaling $2.2 billion and $1.6 billion as of June 30, 2022 and June 30, 2021, respectively.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 24 |
| | | | | | | | |
| Management's Discussion and Analysis | | Our Business Segments | Multifamily |
UPB Covered by New CRT Issuance New CRT Issuance Maximum Coverage
(In billions) (In billions)
n 2Q 2022 vs. 2Q 2021
l The UPB of mortgage loans covered by CRT transactions increased primarily due to the issuance of a SCR Trust note and a MCIP transaction in 2Q 2022. Despite the increase in CRT UPB, the maximum coverage provided by these activities remained flat due to lower average subordination levels on our K Certificate transactions issued during 2Q 2022. The lower subordination levels are still expected to absorb a substantial amount of expected and stressed credit losses.
n YTD 2022 vs. YTD 2021
l The UPB of mortgage loans covered by CRT transactions and the maximum coverage decreased due to fewer securitizations during YTD 2022 as a result of a smaller average securitization pipeline.
See MD&A - Risk Management - Multifamily Mortgage Credit Risk - Transferring Credit Risk to Third-Party Investors for more information on risk transfer transactions and credit enhancements on our Multifamily mortgage portfolio.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 25 |
| | | | | | | | |
| Management's Discussion and Analysis | | Our Business Segments | Multifamily |
The table below presents the components of net income and comprehensive income for our Multifamily segment.
Table 14 - Multifamily Segment Financial Results | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Change | | | | | Change |
| (Dollars in millions) | | 2Q 2022 | 2Q 2021 | | $ | % | | YTD 2022 | YTD 2021 | | $ | % |
| Net interest income | | $224 | | $307 | | | ($83) | | (27) | % | | $522 | | $638 | | | ($116) | | (18) | % |
| Guarantee income | | 170 | | 346 | | | (176) | | (51) | | | 210 | | 505 | | | (295) | | (58) | |
| Investment gains (losses), net | | 89 | | 499 | | | (410) | | (82) | | | 350 | | 1,407 | | | (1,057) | | (75) | |
| Other income (loss) | | 50 | | (1) | | | 51 | | 5,100 | | | 83 | | 25 | | | 58 | | 232 | |
| Net revenues | | 533 | | 1,151 | | | (618) | | (54) | | | 1,165 | | 2,575 | | | (1,410) | | (55) | |
| Benefit (provision) for credit losses | | (9) | | 54 | | | (63) | | (117) | | | (3) | | 104 | | | (107) | | (103) | |
| Non-interest expense | | (166) | | (166) | | | — | | — | | | (320) | | (345) | | | 25 | | 7 | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Income (loss) before income tax (expense) benefit | | 358 | | 1,039 | | | (681) | | (66) | | | 842 | | 2,334 | | | (1,492) | | (64) | |
| Income tax (expense) benefit | | (73) | | (215) | | | 142 | | 66 | | | (170) | | (481) | | | 311 | | 65 | |
| Net income (loss) | | 285 | | 824 | | | (539) | | (65) | | | 672 | | 1,853 | | | (1,181) | | (64) | |
| Other comprehensive income (loss), net of taxes and reclassification adjustments | | (71) | | 6 | | | (77) | | (1,283) | | | (179) | | (55) | | | (124) | | (225) | |
| Comprehensive income (loss) | | $214 | | $830 | | | ($616) | | (74) | % | | $493 | | $1,798 | | | ($1,305) | | (73) | % |
Key Business Drivers:
n 2Q 2022 vs. 2Q 2021
l Lower guarantee income as continued growth in our guarantee portfolio was offset by the impact of higher interest rates on the fair values of our guarantee assets.
l Lower net investment gains due to lower margins on new loan purchases and securitizations.
n YTD 2022 vs. YTD 2021
l Lower guarantee income as continued growth in our guarantee portfolio was offset by the impact of higher interest rates on the fair values of our guarantee assets.
l Lower net investment gains due to spread widening and lower margins on new loan purchases and securitizations.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 26 |
| | | | | | | | |
| Management's Discussion and Analysis | | Risk Management |
RISK MANAGEMENT
To achieve our mission, we take risks as an integral part of our business activities. We are exposed to the following key types of risk: credit risk, market risk, liquidity risk, operational risk, strategic risk, reputation risk, and legal risk.
Credit Risk
Allowance for Credit Losses In 1Q 2022, we adopted accounting guidance that eliminates the recognition and measurement of TDRs. Upon adoption of this guidance, we no longer measure an allowance for credit losses for TDRs we reasonably expect will occur, and we no longer recognize an incremental allowance for credit losses for the economic concession granted to a borrower experiencing financial difficulty for changes in the timing and amount of contractual cash flows when a loan is restructured. See Note 3 for additional information on the adoption of this new accounting guidance.
The tables below present a summary of the changes in our allowance for credit losses and key allowance for credit losses ratios.
Table 15 - Allowance for Credit Losses Activity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2Q 2022 | 2Q 2021 | | YTD 2022 | YTD 2021 |
| (Dollars in millions) | | Single-Family | Multi-family | Total | Single-Family | Multi-family | Total | | Single-Family | Multi-family | Total | Single-Family | Multi-family | Total |
| Allowance for credit losses: |
| Beginning balance | | $4,849 | | $72 | | $4,921 | | $6,130 | | $150 | | $6,280 | | | $5,440 | | $78 | | $5,518 | | $6,353 | | $200 | | $6,553 | |
| Provision (benefit) for credit losses | | 298 | | 9 | | 307 | | (686) | | (54) | | (740) | | | (533) | | 3 | | (530) | | (832) | | (104) | | (936) | |
| Charge-offs | | (107) | | — | | (107) | | (203) | | — | | (203) | | | (280) | | — | | (280) | | (441) | | — | | (441) | |
| Recoveries collected | | 43 | | — | | 43 | | 61 | | — | | 61 | | | 95 | | — | | 95 | | 107 | | — | | 107 | |
| Net charge-offs | | (64) | | — | | (64) | | (142) | | — | | (142) | | | (185) | | — | | (185) | | (334) | | — | | (334) | |
Other(1) | | 259 | | — | | 259 | | 211 | | — | | 211 | | | 620 | | — | | 620 | | 326 | | — | | 326 | |
| Ending balance | | $5,342 | | $81 | | $5,423 | | $5,513 | | $96 | | $5,609 | | | $5,342 | | $81 | | $5,423 | | $5,513 | | $96 | | $5,609 | |
| | | | | | | | | | | | | | |
Average loans outstanding during the period(2) | | $2,917,015 | $29,805 | $2,946,820 | $2,544,845 | $22,644 | $2,567,489 | | $2,892,734 | $28,942 | $2,921,676 | $2,483,190 | $22,632 | $2,505,822 |
| Net charge-offs to average loans outstanding | | — | % | — | % | — | % | 0.01 | % | — | % | 0.01 | % | | 0.01 | % | — | % | 0.01 | % | 0.01 | % | — | % | 0.01 | % |
| | | | | | | | | | | | | | |
| Components of ending balance of allowance for credit losses: |
| Mortgage loans held-for-investment | | $4,904 | | $35 | | $4,939 | | $4,601 | | $47 | | $4,648 | | | | | | | | |
| Advances of pre-foreclosure costs | | 380 | | — | | 380 | | 691 | | — | | 691 | | | | | | | | |
| Accrued interest receivable on mortgage loans | | 6 | | — | | 6 | | 168 | | — | | 168 | | | | | | | | |
| Off-balance sheet credit exposures | | 52 | | 46 | | 98 | | 53 | | 49 | | 102 | | | | | | | | |
| Total ending balance | | $5,342 | | $81 | | $5,423 | | $5,513 | | $96 | | $5,609 | | | | | | | | |
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|
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|
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(1)Primarily includes capitalization of past due interest related to non-accrual loans that received payment deferral plans and loan modifications.
(2)Based on amortized cost basis of held-for-investment loans.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 27 |
| | | | | | | | |
| Management's Discussion and Analysis | | Risk Management |
Table 16 - Allowance for Credit Losses Ratios
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | December 31, 2021 | |
| (Dollars in millions) | | Single-Family | Multifamily | Total | Single-Family | Multifamily | Total | |
|
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|
| Allowance for credit losses on mortgage loans held-for-investment | | $4,904 | | $35 | | $4,939 | | $4,913 | | $34 | | $4,947 | | |
Total loans outstanding(1) | | 2,928,818 | | 30,645 | | 2,959,463 | | 2,806,535 | | 26,743 | | 2,833,278 | | |
Non-accrual loans(1) | | 12,018 | | 42 | | 12,060 | | 18,650 | | — | | 18,650 | | |
Allowance for credit losses(2) to total loans outstanding | | 0.17 | % | 0.11 | % | 0.17 | % | 0.18 | % | 0.13 | % | 0.17 | % | |
| Non-accrual loans to total loans outstanding | | 0.41 | | 0.14 | | 0.41 | | 0.66 | | — | | 0.66 | | |
Allowance for credit losses(3) to non-accrual loans | | 40.81 | | 83.33 | | 40.95 | | 26.34 | | NM | 26.53 | | |
(1)Based on amortized cost basis of held-for-investment loans.
(2)Represents allowance for credit losses on total held-for-investment loans.
(3)NM - not meaningful due to the non-accrual loans balance rounding to zero.
The ratio of non-accrual loans to total loans outstanding decreased and the ratio of allowance for credit losses to non-accrual loans increased as of June 30, 2022 compared to December 31, 2021 as borrowers continued to exit forbearance and completed loan workout activities that returned their mortgages to current status.
Single-Family Mortgage Credit Risk Maintaining Prudent Underwriting Standards and Quality Control Practices and Managing Seller/Servicer Performance Loan Purchase Credit Characteristics
We monitor and evaluate market conditions that could affect the credit quality of our single-family loan purchases. The charts below show the credit profile of the single-family loans we purchased or guaranteed.
Weighted Average Original LTV Ratio 
Weighted Average Original Credit Score(1)
(1)Weighted average original credit score is based on three credit bureaus (Equifax, Experian, and TransUnion).
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 28 |
| | | | | | | | |
| Management's Discussion and Analysis | | Risk Management |
The table below contains additional information about the single-family loans we purchased or guaranteed.
Table 17 - Single-Family New Business Activity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2Q 2022 | 2Q 2021 | | YTD 2022 | YTD 2021 |
| (Dollars in millions) | | Amount | % of Total | Amount | % of Total | | Amount | % of Total | Amount | % of Total |
| 20- and 30-year or more, amortizing fixed-rate | | $124,910 | | 91 | % | $241,604 | | 84 | % | | $306,887 | | 89 | % | $552,014 | | 85 | % |
| 15-year or less, amortizing fixed-rate | | 11,084 | | 8 | | 45,472 | | 16 | | | 34,568 | | 10 | | 96,770 | | 15 | |
| Adjustable-rate | | 1,671 | | 1 | | 1,391 | | — | | | 3,298 | | 1 | | 1,499 | | — | |
| Total | | $137,665 | | 100 | % | $288,467 | | 100 | % | | $344,753 | | 100 | % | $650,283 | | 100 | % |
| | | | | | | | | | |
| Percentage of purchases | | | | | | | | | | |
| DTI ratio > 45% | | | 17 | % | | 11 | % | | | 16 | % | | 10 | % |
| Original LTV ratio > 90% | | | 19 | | | 11 | | | | 16 | | | 9 | |
| Transaction type: | | | | | | | | | | |
| Cash window | | | 30 | | | 46 | | | | 27 | | | 55 | |
| Guarantor swap | | | 70 | | | 53 | | | | 73 | | | 45 | |
| Other | | | — | | | 1 | | | | — | | | — | |
| Property type: | | | | | | | | | | |
| Detached single-family houses and townhouses | | | 92 | | | 92 | | | | 93 | | | 93 | |
| Condominium or co-op | | | 8 | | | 8 | | | | 7 | | | 7 | |
| Occupancy type: | | | | | | | | | | |
| Primary residence | | | 90 | | | 94 | | | | 89 | | | 94 | |
| Second home | | | 2 | | | 3 | | | | 4 | | | 3 | |
| Investment property | | | 8 | | | 3 | | | | 7 | | | 3 | |
| Loan purpose: | | | | | | | | | | |
| Purchase | | | 62 | | | 34 | | | | 52 | | | 29 | |
| Cash-out refinance | | | 28 | | | 23 | | | | 31 | | | 21 | |
| Other refinance | | | 10 | | | 43 | | | | 17 | | | 50 | |
Transferring Credit Risk to Third-Party Investors To reduce our credit risk exposure, we engage in various credit enhancement arrangements, which include CRT transactions and other credit enhancements.
Single-Family Mortgage Portfolio CRT Issuance
The table below provides the UPB of the mortgage loans covered by CRT transactions issued during the periods presented as well as the maximum coverage provided by those transactions.
Table 18 - Single-Family Mortgage Portfolio CRT Issuance | | | | | | | | | | | | | | | | | |
| | 2Q 2022 | 2Q 2021 |
| (In millions) | | UPB(1) | Maximum Coverage(2) | UPB(1) | Maximum Coverage(2) |
| STACR | | $111,412 | | $4,783 | | $101,136 | | $1,500 | |
| Insurance/reinsurance | | 37,700 | | 1,489 | | 69,203 | | 1,567 | |
| Other | | 1,551 | | 248 | | 3,232 | | 409 | |
| | | | | |
| Total CRT issuance | | $150,663 | | $6,520 | | $173,571 | | $3,476 | |
Referenced footnotes are included after the year-to-date table.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 29 |
| | | | | | | | |
| Management's Discussion and Analysis | | Risk Management |
| | | | | | | | | | | | | | | | | |
| | YTD 2022 | YTD 2021 |
| (In millions) | | UPB(1) | Maximum Coverage(2) | UPB(1) | Maximum Coverage(2) |
| STACR | | $234,974 | | $9,871 | | $277,843 | | $5,044 | |
| Insurance/reinsurance | | 121,691 | | 4,715 | | 297,510 | | 4,281 | |
| Other | | 1,697 | | 394 | | 3,403 | | 580 | |
| Less: UPB with more than one type of CRT | | — | | — | | (159,835) | | — | |
| Total CRT issuance | | $358,362 | | $14,980 | | $418,921 | | $9,905 | |
(1) Represents the UPB of the assets included in the associated reference pool or securitization trust, as applicable.
(2) For STACR transactions, represents the balance held by third parties at issuance. For insurance/reinsurance transactions, represents the aggregate limit of insurance purchased from third parties at issuance.
Single-Family Mortgage Portfolio Credit Enhancement Coverage Outstanding
The table below provides information on the UPB and maximum coverage associated with credit-enhanced loans in our Single-Family mortgage portfolio.
Table 19 - Single-Family Mortgage Portfolio Credit Enhancement Coverage Outstanding | | | | | | | | | | | | | | |
| | June 30, 2022 |
| (Dollars in millions) | | UPB(1) | % of Portfolio | Maximum Coverage(2) |
Primary mortgage insurance(3) | | $577,678 | | 20 | % | $145,351 | |
| STACR | | 1,156,106 | | 40 | | 35,817 | |
| Insurance/reinsurance | | 937,143 | | 32 | | 19,146 | |
| Other | | 40,500 | | 1 | | 10,624 | |
Less: UPB with multiple credit enhancements and other reconciling items(4) | | (985,403) | | (34) | | — | |
| Single-Family mortgage portfolio - credit-enhanced | | 1,726,024 | | 59 | | 210,938 | |
| Single-Family mortgage portfolio - non-credit-enhanced | | 1,201,905 | | 41 | | N/A |
| Total | | $2,927,929 | | 100 | % | $210,938 | |
| | | | | | | | | | | | | | |
| | December 31, 2021 |
| (Dollars in millions) | | UPB(1) | % of Portfolio | Maximum Coverage(2) |
Primary mortgage insurance(3) | | $545,293 | | 20 | % | $135,330 | |
| STACR | | 1,024,013 | | 37 | | 32,641 | |
| Insurance/reinsurance | | 914,003 | | 33 | | 16,209 | |
| Other | | 42,273 | | 1 | | 10,598 | |
Less: UPB with multiple credit enhancements and other reconciling items(4) | | (1,034,546) | | (38) | | — | |
| Single-Family mortgage portfolio - credit-enhanced | | 1,491,036 | | 53 | | 194,778 | |
| Single-Family mortgage portfolio - non-credit-enhanced | | 1,301,188 | | 47 | | N/A |
Total | | $2,792,224 | | 100 | % | $194,778 | |
(1) Represents the current UPB of the assets included in the associated reference pool or securitization trust, as applicable.
(2) For STACR transactions, represents the outstanding balance held by third parties. For insurance/reinsurance transactions, represents the remaining aggregate limit of insurance purchased from third parties.
(3) Amounts exclude certain loans for which we do not control servicing, as the coverage information for these loans is not readily available to us.
(4) Other reconciling items primarily include timing differences in reporting cycles between the UPB of certain CRT transactions and the UPB of the underlying loans.
Credit Enhancement Coverage Characteristics
The table below provides the serious delinquency rates for the credit-enhanced and non-credit-enhanced loans in our Single-Family mortgage portfolio. The credit-enhanced categories are not mutually exclusive as a single loan may be covered by both primary mortgage insurance and other credit enhancements.
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| Freddie Mac 2Q 2022 Form 10-Q | | 30 |
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| Management's Discussion and Analysis | | Risk Management |
Table 20 - Serious Delinquency Rates for Credit-Enhanced and Non-Credit-Enhanced Loans in Our Single-Family Mortgage Portfolio | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
(% of portfolio based on UPB)(1) | | % of Portfolio(2) | SDQ Rate | | % of Portfolio(2) | SDQ Rate |
| Credit-enhanced: | | | | | | |
| Primary mortgage insurance | | 20 | % | 1.22 | % | | 20 | % | 1.79 | % |
| CRT and other | | 53 | | 0.77 | | | 47 | | 1.24 | |
| Non-credit-enhanced | | 41 | | 0.66 | | | 47 | | 0.93 | |
| Total | | N/A | 0.76 | | | N/A | 1.12 | |
(1)Excludes loans underlying certain securitization products for which loan-level data is not available.
(2)Percentages do not total to 100% as a single loan may be included in multiple line items.
Credit Enhancement Expenses and Recoveries
The table below presents the details of the credit enhancement recovery receivables we have recognized within other assets on our condensed consolidated balance sheets.
Table 21 - Single-Family Credit Enhancement Receivables | | | | | | | | | | | |
| (In millions) | | June 30, 2022 | December 31, 2021 |
| Freestanding credit enhancement expected recovery receivables, net of allowance | | $110 | | $114 | |
Primary mortgage insurance receivables(1), net of allowance | | 61 | | 76 | |
| Total credit enhancement receivables | | $171 | | $190 | |
(1)Excludes $0.4 billion of deferred payment obligations associated with unpaid claim amounts as of both June 30, 2022 and December 31, 2021. We have reserved for substantially all of these unpaid amounts as collectability is uncertain.
See MD&A - Consolidated Results of Operations for additional information on credit enhancement expense.
Monitoring Loan Performance and Characteristics We review loan performance, including delinquency statistics and related loan characteristics, in conjunction with housing market and economic conditions, to assess credit risk when estimating our allowance for credit losses. We also use this information to assess if our pricing and eligibility standards reflect the risk associated with the loans we purchase and guarantee.
Loan Characteristics
The table below contains details of the characteristics of the loans in our Single-Family mortgage portfolio.
Table 22 - Credit Quality Characteristics of Our Single-Family Mortgage Portfolio | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| (Dollars in millions) | | UPB | Original Credit
Score (1) | Current Credit
Score(1)(2) | Original LTV Ratio | Current
LTV
Ratio | Current
LTV Ratio
>100% |
| Single-Family mortgage portfolio year of origination: | | | | | | | |
| 2022 | | $254,434 | | 744 | 743 | 74 | % | 70 | % | — | % |
| 2021 | | 1,094,052 | | 752 | 756 | 71 | | 59 | | — | |
| 2020 | | 811,154 | | 760 | 768 | 71 | | 50 | | — | |
| 2019 | | 139,712 | | 746 | 751 | 76 | | 49 | | — | |
| 2018 | | 56,792 | | 736 | 736 | 76 | | 46 | | — | |
| 2017 and prior | | 571,785 | | 737 | 751 | 75 | | 34 | | — | |
| Total | | $2,927,929 | | 750 | 756 | 72 | | 52 | | — | |
Referenced footnotes are included after the prior period table.
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| Freddie Mac 2Q 2022 Form 10-Q | | 31 |
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| Management's Discussion and Analysis | | Risk Management |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| (Dollars in millions) | | UPB | Original Credit
Score (1) | Current Credit
Score(1)(2) | Original LTV Ratio | Current
LTV
Ratio | Current
LTV Ratio
>100% |
| Single-Family mortgage portfolio year of origination: | | | | | | | |
| 2021 | | $1,059,299 | | 752 | 751 | 71 | % | 66 | % | — | % |
| 2020 | | 867,122 | | 760 | 769 | 71 | | 56 | | — | |
| 2019 | | 157,971 | | 746 | 751 | 76 | | 55 | | — | |
| 2018 | | 66,149 | | 736 | 736 | 76 | | 52 | | — | |
| 2017 | | 88,800 | | 741 | 746 | 75 | | 46 | | — | |
| 2016 and prior | | 552,883 | | 737 | 752 | 75 | | 36 | | — | |
| Total | | $ | 2,792,224 | | 751 | | 756 | | 72 | | 55 | | — | |
(1)Original credit score is based on three credit bureaus (Equifax, Experian, and TransUnion). Current credit score is based on Experian only.
(2)Credit scores for certain recently acquired loans may not have been updated by the credit bureau since the loan acquisition and therefore the original credit scores also represent the current credit scores.
The following table presents the combination of credit score and CLTV ratio attributes of loans in our Single-Family mortgage portfolio.
Table 23 - Single-Family Mortgage Portfolio Attribute Combinations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | CLTV ≤ 60 | | CLTV > 60 to 80 | | CLTV > 80 to 90 | | CLTV > 90 to 100 | | CLTV > 100 | | All Loans |
| Original credit score | | % of Portfolio | SDQ Rate | | % of Portfolio | SDQ Rate(1) | | % of Portfolio | SDQ Rate(1) | | % of Portfolio | SDQ Rate(1) | | % of Portfolio | SDQ Rate(1) | | % of Portfolio | SDQ Rate | % Modified(2) |
| < 620 | | 0.8 | % | 6.18 | % | | 0.1 | % | 11.06 | % | | — | % | NM | | — | % | NM | | — | % | NM | | 0.9 | % | 6.69 | % | 8.5 | % |
| 620 to 679 | | 5.1 | | 2.31 | | | 1.9 | | 2.09 | | | 0.2 | | 2.01 | % | | — | | NM | | — | | NM | | 7.2 | | 2.26 | | 3.6 | |
| ≥ 680 | | 60.8 | | 0.50 | | | 25.7 | | 0.48 | | | 4.2 | | 0.35 | | | 1.1 | | 0.19 | % | | — | | NM | | 91.8 | | 0.49 | | 0.6 | |
| Not available | | 0.1 | | 5.59 | | | — | | NM | | — | | NM | | — | | NM | | — | | NM | | 0.1 | | 5.64 | | 19.6 | |
| Total | | 66.8 | % | 0.79 | | | 27.7 | % | 0.67 | | | 4.4 | % | 0.51 | | | 1.1 | % | 0.42 | | | — | % | NM | | 100.0 | % | 0.76 | | 1.1 | |
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| | December 31, 2021 |
| | CLTV ≤ 60 | | CLTV > 60 to 80 | | CLTV > 80 to 90 | | CLTV > 90 to 100 | | CLTV > 100 | | All Loans |
| Original credit score | | % of Portfolio | SDQ Rate | | % of Portfolio | SDQ Rate(1) | | % of Portfolio | SDQ Rate(1) | | % of Portfolio | SDQ Rate(1) | | % of Portfolio | SDQ Rate(1) | | % of Portfolio | SDQ Rate | % Modified(2) |
| < 620 | | 0.8 | % | 6.69 | % | | 0.2 | % | 11.68 | % | | — | % | NM | | — | % | NM | | — | % | NM | | 1.0 | % | 7.50 | % | 8.5 | % |
| 620 to 679 | | 4.4 | | 3.29 | | | 2.3 | | 3.05 | | | 0.3 | | 2.56 | % | | 0.1 | | 2.57 | % | | — | | NM | | 7.1 | | 3.22 | | 3.7 | |
| ≥ 680 | | 51.9 | | 0.80 | | | 32.3 | | 0.78 | | | 5.3 | | 0.54 | | | 2.3 | | 0.25 | | | — | | NM | | 91.8 | | 0.78 | | 0.6 | |
| Not available | | 0.1 | | 6.58 | | | — | | NM | | — | | NM | | — | | NM | | — | | NM | | 0.1 | | 6.85 | | 18.7 | |
| Total | | 57.2 | % | 1.19 | | 34.8 | % | 1.04 | | | 5.6 | % | 0.77 | | 2.4 | % | 0.47 | | | — | % | NM | | 100.0 | % | 1.12 | 1.0 |
(1) NM - not meaningful due to the percentage of the portfolio rounding to zero.
(2) Primarily includes loans modified through the Freddie Mac Flex Modification program.
Geographic Concentrations
We purchase mortgage loans from across the U.S. However, local economic conditions can affect the borrower's ability to repay and the value of the underlying collateral, leading to concentrations of credit risk in certain geographic areas. In addition, certain states and municipalities have passed or may pass laws that limit our ability to foreclose or evict and make it more difficult and costly to manage our risk.
See Note 12 for more information about the geographic distribution of our Single-Family mortgage portfolio.
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| Freddie Mac 2Q 2022 Form 10-Q | | 32 |
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| Management's Discussion and Analysis | | Risk Management |
Delinquency Rates
We report Single-Family delinquency rates based on the number of loans in our Single-Family mortgage portfolio that are past due as reported to us by our servicers as a percentage of the total number of loans in our Single-Family mortgage portfolio.
The chart below shows the delinquency rates of mortgage loans in our Single-Family mortgage portfolio.
Single-Family Delinquency Rates 
Our Single-Family serious delinquency rate decreased to 0.76% as of June 30, 2022, compared to 1.86% as of June 30, 2021, as borrowers continued to exit forbearance and completed loan workout activities that returned their mortgages to current status. See Note 3 for additional information on the payment status of our single-family mortgage loans.
Multifamily Mortgage Credit Risk Maintaining Policies and Procedures for New Business Activity, Including Prudent Underwriting Standards Our underwriting standards focus on the LTV ratio and DSCR, which estimates a borrower's ability to repay the loan using the secured property's cash flows, after expenses. The charts below provide the weighted average original LTV and DSCR for our new business activity for the periods presented.
Weighted Average Original LTV Ratio 
Weighted Average Original DSCR
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| Freddie Mac 2Q 2022 Form 10-Q | | 33 |
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| Management's Discussion and Analysis | | Risk Management |
Transferring Credit Risk to Third-Party Investors To reduce our credit risk exposure, we engage in a variety of CRT activities; however, securitizations remain our principal credit risk transfer mechanism. Through securitizations (i.e., subordination), we have transferred a substantial amount of the expected and stressed credit risk on the Multifamily mortgage portfolio, thereby reducing our overall credit risk exposure.
Multifamily Mortgage Portfolio CRT Issuance
The table below provides the UPB of the mortgage loans covered by CRT transactions issued during the periods presented as well as the maximum coverage provided by those transactions.
Table 24 - Multifamily Mortgage Portfolio CRT Issuance | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2Q 2022 | | 2Q 2021 | | YTD 2022 | | YTD 2021 |
| (In millions) | | UPB(1) | Maximum Coverage(2) | | UPB(1) | Maximum Coverage(2) | | UPB(1) | Maximum Coverage(2) | | UPB(1) | Maximum Coverage(2) |
| Subordination | | $14,781 | | $940 | | | $16,929 | | $1,351 | | | $28,886 | | $1,914 | | | $38,043 | | $2,969 | |
| SCR | | 5,982 | | 141 | | | — | | — | | | 5,982 | | 141 | | | 4,852 | | 277 | |
| Insurance/reinsurance | | 5,982 | | 200 | | | — | | — | | | 5,982 | | 200 | | | — | | — | |
| Lender risk-sharing | | 214 | | 26 | | | — | | — | | | 214 | | 26 | | | — | | — | |
| | | | | | | | | | | | |
| Less: UPB with more than one type of CRT | | (5,982) | | — | | | — | | — | | | (5,982) | | — | | | — | | — | |
| Total CRT issuance | | $20,977 | | $1,307 | | | $16,929 | | $1,351 | | | $35,082 | | $2,281 | | | $42,895 | | $3,246 | |
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(1) Represents the UPB of the assets included in the associated reference pool or securitization trust, as applicable.
(2) For subordination, represents the UPB of the securities that are held by third parties at issuance and are subordinate to the securities we guarantee. For SCR transactions, represents the UPB of securities held by third parties at issuance. For insurance/reinsurance transactions, represents the aggregate limit of insurance purchased from third parties at issuance. For lender risk-sharing, represents the amount of loss recovery that is available subject to the terms of counterparty agreements at issuance.
Multifamily Mortgage Portfolio Credit Enhancement Coverage Outstanding
While we obtain various forms of credit protection in connection with the acquisition, guarantee, and/or securitization of a loan or group of loans, our principal credit enhancement type is subordination, which is created through our securitization transactions. As of June 30, 2022 and December 31, 2021, our maximum coverage provided by subordination in nonconsolidated VIEs was $43.2 billion and $43.9 billion, respectively.
The table below presents the UPB and delinquency rates for both credit-enhanced and non-credit-enhanced loans underlying our Multifamily mortgage portfolio.
Table 25 - Credit-Enhanced and Non-Credit-Enhanced Loans Underlying Our Multifamily Mortgage Portfolio | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| (Dollars in millions) | | UPB | | Delinquency Rate | | | | UPB | | Delinquency Rate | |
| Credit-enhanced: | | | | | | | | | | | |
| Subordination | | $362,668 | | | 0.06 | % | | | | $360,113 | | | 0.08 | % | |
| Other | | 33,889 | | | 0.13 | | | | | 28,565 | | | 0.16 | | |
| Total credit-enhanced | | 396,557 | | | 0.07 | | | | | 388,678 | | | 0.08 | | |
| Non-credit-enhanced | | 18,498 | | | 0.14 | | | | | 25,985 | | | 0.05 | | |
| Total | | $415,055 | | | 0.07 | | | | | $414,663 | | | 0.08 | | |
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| Freddie Mac 2Q 2022 Form 10-Q | | 34 |
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| Management's Discussion and Analysis | | Risk Management |
Market Risk
Our business segments have embedded exposure to market risk, which is the economic risk associated with adverse changes in interest rates, volatility, and spreads. Market risk can adversely affect future cash flows, or economic value, as well as earnings and net worth. The primary sources of interest-rate risk are our investments in mortgage-related assets, the debt we issue to fund these assets, and our Single-Family guarantees.
Our primary interest-rate risk measures are duration gap and Portfolio Value Sensitivity (PVS). Duration gap measures the difference in price sensitivity to interest rate changes between our financial assets and liabilities and is expressed in months relative to the value of assets. PVS is an estimate of the change in the present value of the cash flows of our financial assets and liabilities from an instantaneous shock to interest rates, assuming spreads are held constant and no rebalancing actions are undertaken. PVS is measured in two ways, one measuring the estimated sensitivity of our portfolio value to a 50 basis point parallel movement in interest rates (PVS-L) and the other to a non-parallel movement resulting from a 25 basis point change in the slope of the yield curve (PVS-YC). While we believe that duration gap and PVS are useful risk management tools, they should be understood as estimates rather than as precise measurements.
The following tables provide our duration gap, estimated point-in-time and minimum and maximum PVS-L and PVS-YC results, and an average of the daily values and standard deviation. The table below also provides PVS-L estimates assuming an immediate 100 basis point shift in the yield curve. The interest-rate sensitivity of a mortgage portfolio varies across a wide range of interest rates.
Table 26 - PVS-YC and PVS-L Results Assuming Shifts of the Yield Curve | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| | PVS-YC | | PVS-L | | PVS-YC | | PVS-L |
| (In millions) | | 25 bps | | 50 bps | 100 bps | | 25 bps | | 50 bps | 100 bps |
Assuming shifts of the yield curve, (gains) losses on:(1) | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Investments | | ($382) | | | ($3,384) | | ($6,845) | | | $368 | | | $3,531 | | $7,101 | |
Guarantees(2) | | 96 | | | 616 | | 1,333 | | | (242) | | | (1,181) | | (1,830) | |
| Total assets | | (286) | | | (2,768) | | (5,512) | | | 126 | | | 2,350 | | 5,271 | |
| Liabilities | | (33) | | | 2,109 | | 4,204 | | | 18 | | | (2,385) | | (4,870) | |
| Derivatives | | 319 | | | 657 | | 1,296 | | | (144) | | | 94 | | (217) | |
| Total | | $— | | | ($2) | | ($12) | | | $— | | | $59 | | $184 | |
| PVS | | $— | | | $— | | $— | | | $— | | | $59 | | $184 | |
(1)The categorization of the PVS impact between assets, liabilities, and derivatives in this table is based upon the economic characteristics of those assets and liabilities, not their accounting classification. For example, purchase and sale commitments of mortgage-related securities and debt of consolidated trusts held by the mortgage-related investments portfolio are both categorized as assets in this table.
(2)Represents the interest-rate risk from our Single-Family guarantees, which include buy-ups, float, and upfront fees (including buy-downs).
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| Freddie Mac 2Q 2022 Form 10-Q | | 35 |
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| Management's Discussion and Analysis | | Risk Management |
Table 27 - Duration Gap and PVS Results | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2Q 2022 | | 2Q 2021 |
(Duration gap in months, dollars in millions) | | Duration Gap | PVS-YC 25 bps | PVS-L 50 bps | | Duration Gap | PVS-YC 25 bps | PVS-L 50 bps |
| Average | | (0.1) | | $7 | | $6 | | | 0.3 | | $7 | | $17 | |
| Minimum | | (0.4) | | — | | — | | | (0.8) | | — | | — | |
| Maximum | | 0.1 | | 18 | | 29 | | | 1.0 | | 24 | | 93 | |
| Standard deviation | | 0.1 | | 5 | | 9 | | | 0.3 | | 6 | | 23 | |
| | | | | | | | |
| | YTD 2022 | | YTD 2021 |
(Duration gap in months, dollars in millions) | | Duration Gap | PVS-YC 25 bps | PVS-L 50 bps | | Duration Gap | PVS-YC 25 bps | PVS-L 50 bps |
| Average | | — | | $8 | | $8 | | | 0.3 | | $7 | | $39 | |
| Minimum | | (0.4) | | — | | — | | | (0.8) | | — | | — | |
| Maximum | | 0.4 | | 18 | | 77 | | | 1.0 | | 24 | | 200 | |
| Standard deviation | | 0.2 | | 5 | | 15 | | | 0.3 | | 6 | | 49 | |
Derivatives enable us to reduce our economic interest-rate risk exposure as we continue to align our derivative portfolio with the changing duration of our economically hedged assets and liabilities. The table below shows that the PVS-L risk levels, assuming a 50 basis point shift in the yield curve for the periods presented, would have been higher if we had not used derivatives.
Table 28 - PVS-L Results Before Derivatives and After Derivatives | | | | | | | | | | | | | | | | | |
| | PVS-L (50 bps) | | |
| (In millions) | | Before Derivatives | After Derivatives | | Effect of Derivatives |
June 30, 2022(1) | | $670 | | $— | | | ($670) | |
December 31, 2021(2) | | 508 | | 59 | | | (449) | |
(1)Before derivatives, our adverse PVS-L rate movement was +50 bps, whereas after derivatives our adverse PVS-L rate movement was -50 bps.
(2)Before derivatives, our adverse PVS-L rate movement was -50 bps, whereas after derivatives our adverse PVS-L rate movement was +50 bps.
Earnings Sensitivity to Market Risk The accounting treatment for our financial assets and liabilities (i.e., some are measured at amortized cost, while others are measured at fair value) creates variability in our GAAP earnings when interest rates and spreads change. We manage this variability of GAAP earnings, which may not reflect the economics of our business, using fair value hedge accounting. See MD&A - Consolidated Results of Operations and MD&A - Our Business Segments for additional information on the effect of changes in interest rates and market spreads on our financial results.
Interest Rate-Related Earnings Sensitivity While we manage our interest-rate risk exposure on an economic basis to a low level as measured by our models, changes in interest rates may still result in significant earnings variability from period to period.
By electing fair value hedge accounting for certain single-family mortgage loans and certain debt instruments, we are able to reduce the potential variability in our earnings attributable to changes in interest rates. See Note 8 for additional information on hedge accounting.
Earnings Sensitivity to Changes in Interest Rates
We evaluate a range of interest rate scenarios to determine the sensitivity of our earnings due to changes in interest rates and to determine our fair value hedge accounting strategies. The interest rate scenarios evaluated include parallel shifts in the yield curve in which interest rates increase or decrease by 100 basis points, non-parallel shifts in the yield curve in which long-term interest rates increase or decrease by 100 basis points, and non-parallel shifts in the yield curve in which short-term and medium-term interest rates increase or decrease by 100 basis points. This evaluation identifies the net effect on comprehensive income from changes in fair value attributable to changes in interest rates for financial instruments measured at fair value, including the effects of fair value hedge accounting, for each of the identified scenarios. This evaluation does not include the net effect on comprehensive income from interest-rate sensitive items that are not measured at fair value (e.g., amortization of mortgage loan premiums and discounts, changes in fair value of held-for-sale mortgage loans for which we have not elected
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| Freddie Mac 2Q 2022 Form 10-Q | | 36 |
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| Management's Discussion and Analysis | | Risk Management |
the fair value option), or from changes in our future contractual net interest income due to repricing of our interest-bearing assets and liabilities. The before-tax results of this evaluation are shown in the table below.
Table 29 - Earnings Sensitivity to Changes in Interest Rates | | | | | | | | | | | | | | |
| (In millions) | | June 30, 2022 | | June 30, 2021 |
Interest Rate Scenarios(1) | | | | |
| Parallel yield curve shifts: | | | | |
| +100 basis points | | $76 | | | $19 | |
| -100 basis points | | (76) | | | (19) | |
| Non-parallel yield curve shifts - long-term interest rates: | | | | |
| +100 basis points | | 114 | | | (179) | |
| -100 basis points | | (114) | | | 179 | |
| Non-parallel yield curve shifts - short-term and medium-term interest rates: | | | | |
| +100 basis points | | (38) | | | 197 | |
| -100 basis points | | 38 | | | (197) | |
(1)The earnings sensitivity presented is calculated using the change in interest rates and net effective duration exposure.
The actual effect of changes in interest rates on our comprehensive income in any given period may vary based on a number of factors, including, but not limited to, the composition of our assets and liabilities, the actual changes in interest rates that are realized at different terms along the yield curve, and the effectiveness of our hedge accounting strategies. Even if implemented properly, our hedge accounting programs may not be effective in reducing earnings volatility, and our hedges may fail in any given future period, which could expose us to significant earnings variability in that period.
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| Freddie Mac 2Q 2022 Form 10-Q | | 37 |
| | | | | | | | |
| Management's Discussion and Analysis | | Liquidity and Capital Resources |
LIQUIDITY AND CAPITAL RESOURCES
Our business activities require that we maintain adequate liquidity to meet our financial obligations as they come due and to meet the needs of customers in a timely and cost-efficient manner. We are also required to comply with minimum liquidity requirements established by FHFA and to maintain adequate capital resources to avoid being placed into receivership by FHFA.
Liquidity
Primary Sources of Liquidity The following table lists the sources of our liquidity, the balances as of the dates shown, and a brief description of their importance to Freddie Mac.
Table 30 - Liquidity Sources | | | | | | | | | | | | | |
| (In millions) | June 30, 2022(1) | December 31, 2021(1) | Description | | |
| | | | | |
| Other Investments Portfolio - Liquidity and Contingency Operating Portfolio | $109,714 | | $80,262 | | The liquidity and contingency operating portfolio, included within our other investments portfolio, is primarily used for short-term liquidity management. | | |
| Mortgage Loans and Mortgage-Related Securities | 22,770 | | 43,393 | | The liquid portion of our mortgage-related investments portfolio can be pledged or sold for liquidity purposes. The amount of cash we may be able to successfully raise may be substantially less than the balance. | | |
(1)Represents carrying value for the liquidity and contingency operating portfolio, included within our other investments portfolio, and UPB for the liquid portion of the mortgage-related investments portfolio.
Other Investments Portfolio Our other investments portfolio is important to our cash flow, collateral management, asset and liability management, and ability to provide liquidity and stability to the mortgage market.
Our liquidity and contingency operating portfolio primarily includes securities purchased under agreements to resell and non-mortgage-related securities. Our non-mortgage-related securities consist of U.S. Treasury securities and other investments that we could sell to provide us with an additional source of liquidity to fund our business operations. We also maintain non-interest-bearing deposits at the Federal Reserve Bank of New York and interest-bearing deposits at commercial banks. Our interest-bearing deposits at commercial banks totaled $4.0 billion and $3.5 billion as of June 30, 2022 and December 31, 2021, respectively.
The other investments portfolio also included cash collateral posted to us primarily by derivatives counterparties of $1.8 billion and $1.2 billion as of June 30, 2022 and December 31, 2021, respectively. We have primarily invested this collateral in securities purchased under agreements to resell and non-mortgage-related securities as part of our liquidity and contingency operating portfolio, although the collateral may be subject to return to our counterparties based on the terms of our master netting and collateral agreements. See MD&A - Our Portfolios - Investments Portfolio - Other Investments Portfolio for more information about our other investments portfolio.
Mortgage Loans and Mortgage-Related Securities We invest principally in mortgage loans and mortgage-related securities, certain categories of which are largely unencumbered and liquid. Our primary source of liquidity among these mortgage assets is our holdings of agency securities.
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| Freddie Mac 2Q 2022 Form 10-Q | | 38 |
| | | | | | | | |
| Management's Discussion and Analysis | | Liquidity and Capital Resources |
Primary Sources of Funding The following table lists the sources of our funding, the balances as of the dates shown, and a brief description of their importance to Freddie Mac.
Table 31 - Funding Sources | | | | | | | | | | | |
| (In millions) | June 30, 2022(1) | December 31, 2021(1) | Description |
| Debt of Freddie Mac | $159,063 | | $177,131 | | Debt of Freddie Mac is used to fund our business activities. |
Debt of
Consolidated Trusts | 2,934,115 | | 2,803,054 | | Debt of consolidated trusts is used primarily to fund our Single-Family guarantee activities. This type of debt is principally repaid by the cash flows of the associated mortgage loans. As a result, our repayment obligation is limited to amounts paid pursuant to our guarantee of principal and interest and to purchase modified or seriously delinquent loans from the trusts. |
(1)Represents the carrying value of debt balances after consideration of offsetting arrangements.
We issue debt of Freddie Mac to fund our business activities. Competition for funding can vary depending on economic, financial market, and regulatory environments. We issue debt of Freddie Mac based on a variety of factors, including an assessment of market conditions, debt funding spreads, and our liquidity requirements.
The table below summarizes the par value and the average rate of debt of Freddie Mac we issued or paid off, including regularly scheduled principal payments, payments resulting from calls, and payments for repurchases. We call, exchange, or repurchase our outstanding debt from time to time for a variety of reasons, including managing our funding composition and supporting the liquidity of our debt securities.
Table 32 - Debt of Freddie Mac Activity | | | | | | | | | | | | | | | | | | | | |
| | 2Q 2022 | | 2Q 2021 |
| (Dollars in millions) | | Par Value | Average Rate(1) | | Par Value | Average Rate(1) |
| Short-term: | | | | | | |
| Beginning balance | | $3,300 | | 0.25 | % | | $10,910 | | 0.03 | % |
| Issuances | | 2,165 | | 1.45 | | | — | | — | |
| Repayments | | — | | — | | | (10,910) | | 0.03 | |
| Maturities | | (2,350) | | 0.17 | | | — | | — | |
| Ending balance | | 3,115 | | 1.14 | | | — | | — | |
| | | | | | |
| Securities sold under agreements to repurchase | | 9,977 | | 1.06 | | | 4,620 | | (0.03) | |
| Offsetting arrangements | | (9,977) | | | | (4,620) | | |
| Securities sold under agreements to repurchase, net | | — | | — | | | — | | — | |
| Total short-term debt | | 3,115 | | 1.14 | | | — | | — | |
| | | | | | |
| Long-term: | | | | | | |
| Beginning balance | | 164,876 | | 1.21 | | | 251,548 | | 1.13 | |
| Issuances | | 15,262 | | 3.28 | | | — | | — | |
| Repayments | | (71) | | 4.36 | | | (11,806) | | 0.55 | |
| Maturities | | (14,634) | | 0.42 | | | (9,266) | | 0.87 | |
| Total long-term debt | | 165,433 | | 1.52 | | | 230,476 | | 1.17 | |
| Total debt of Freddie Mac, net | | $168,548 | | 1.52 | % | | $230,476 | | 1.17 | % |
Referenced footnote is included after the year-to-date table.
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| Freddie Mac 2Q 2022 Form 10-Q | | 39 |
| | | | | | | | |
| Management's Discussion and Analysis | | Liquidity and Capital Resources |
| | | | | | | | | | | | | | | | | | | | |
| | YTD 2022 | | YTD 2021 |
| (Dollars in millions) | | Par Value | Average Rate(1) | | Par Value | Average Rate(1) |
| Short-term: | | | | | | |
| Beginning balance | | $— | | — | % | | $4,955 | | 1.31 | % |
| Issuances | | 7,718 | | 0.51 | | | 22,050 | | 0.04 | |
| Repayments | | — | | — | | | (24,570) | | 0.15 | |
| Maturities | | (4,603) | | 0.09 | | | (2,435) | | 1.48 | |
| Ending balance | | 3,115 | | 1.14 | | | — | | — | |
| | | | | | |
| Securities sold under agreements to repurchase | | 9,977 | | 1.06 | | | 4,620 | | (0.03) | |
| Offsetting arrangements | | (9,977) | | | | (4,620) | | |
| Securities sold under agreements to repurchase, net | | — | | — | | | — | | — | |
| Total short-term debt | | 3,115 | | 1.14 | | | — | | — | |
| | | | | | |
| Long-term: | | | | | | |
| Beginning balance | | 181,613 | | 1.11 | | | 281,386 | | 1.12 | |
| Issuances | | 17,072 | | 3.17 | | | 1,090 | | 0.60 | |
| Repayments | | (1,905) | | 3.03 | | | (37,016) | | 0.75 | |
| Maturities | | (31,347) | | 0.26 | | | (14,984) | | 1.40 | |
| Total long-term debt | | 165,433 | | 1.52 | | | 230,476 | | 1.17 | |
| Total debt of Freddie Mac, net | | $168,548 | | 1.52 | % | | $230,476 | | 1.17 | % |
(1)Average rate is weighted based on par value.
Total debt issuance and repayments decreased year-over-year primarily due to a lower mortgage-related investments portfolio balance and lower cash window purchase volume. As of June 30, 2022, our aggregate indebtedness pursuant to the Purchase Agreement was $168.6 billion, which was below the current $300.0 billion debt cap limit. Our aggregate indebtedness calculation primarily includes the par value of short- and long-term debt. Our outstanding total debt of Freddie Mac balance decreased from December 31, 2021 to June 30, 2022 primarily due to lower funding needs as discussed above.
Maturity and Redemption Dates
The following table presents the debt of Freddie Mac by contractual maturity date and earliest redemption date. The earliest redemption date refers to the earliest call date for callable debt and the contractual maturity date for all other debt of Freddie Mac.
Table 33 - Maturity and Redemption Dates | | | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2022 | | As of December 31, 2021 |
| (Par value in millions) | | Contractual Maturity Date | Earliest Redemption Date | | Contractual Maturity Date | Earliest Redemption Date |
| | | | | | |
Debt of Freddie Mac(1): | | | | | | |
| 1 year or less | | $48,910 | | $123,997 | | | $55,958 | | $118,436 | |
| 1 year through 2 years | | 34,191 | | 23,256 | | | 38,688 | | 35,724 | |
| 2 years through 3 years | | 20,921 | | 3,972 | | | 13,274 | | 1,745 | |
| 3 years through 4 years | | 31,937 | | 9,198 | | | 35,436 | | 12,076 | |
| 4 years through 5 years | | 5,145 | | 46 | | | 4,717 | | 87 | |
| Thereafter | | 31,089 | | 11,724 | | | 31,736 | | 11,741 | |
STACR and SCR debt(2) | | 6,332 | | 6,332 | | | 9,139 | | 9,139 | |
| Total debt of Freddie Mac | | $178,525 | | $178,525 | | | $188,948 | | $188,948 | |
(1)Includes payables related to securities sold under agreements to repurchase that we offset against receivables related to securities purchased under agreements to resell on our condensed consolidated balance sheets, when such amounts meet the conditions for offsetting in the accounting guidance.
(2)STACR debt notes and SCR debt notes are subject to prepayment risk as their payments are based upon the performance of a reference pool of mortgage assets that may be prepaid by the related mortgage borrower at any time generally without penalty and are, therefore, included as a separate category in the table.
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| Freddie Mac 2Q 2022 Form 10-Q | | 40 |
| | | | | | | | |
| Management's Discussion and Analysis | | Liquidity and Capital Resources |
Debt of Consolidated Trusts The largest component of debt on our condensed consolidated balance sheets is debt of consolidated trusts, which relates to securitization transactions that we consolidate for accounting purposes. We primarily issue this type of debt by securitizing mortgage loans to fund our Single-Family activities.
The table below shows activity for the debt of consolidated trusts.
Table 34 - Debt of Consolidated Trusts Activity | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2Q 2022 | 2Q 2021 | | YTD 2022 | YTD 2021 |
| Beginning balance | | $2,835,071 | | $2,376,691 | | | $2,732,056 | | $2,240,602 | |
| Issuances | | 203,919 | | 394,018 | | | 499,166 | | 804,141 | |
| Repayments and extinguishments | | (161,268) | | (264,375) | | | (353,500) | | (538,409) | |
| Ending balance | | 2,877,722 | | 2,506,334 | | | 2,877,722 | | 2,506,334 | |
Unamortized premiums and discounts | | 56,393 | | 69,319 | | | 56,393 | | 69,319 | |
| Debt of consolidated trusts | | $2,934,115 | | $2,575,653 | | | $2,934,115 | | $2,575,653 | |
Off-Balance Sheet Arrangements We enter into certain business arrangements that are not recorded on our condensed consolidated balance sheets or that may be recorded in amounts that differ from the full contractual or notional amount of the transaction that affect our short- and long-term liquidity needs. Certain of these arrangements present credit risk exposure. See MD&A - Risk Management - Credit Risk for additional information on our credit risk exposure on off-balance sheet arrangements.
We have certain off-balance sheet arrangements related to our securitization and other mortgage-related guarantee activities. Our off-balance sheet arrangements related to securitization activities primarily consist of guaranteed K Certificates and SB Certificates. Our guarantee of these securitization activities and other mortgage-related guarantees may result in liquidity needs to cover potential cash flow shortfalls from borrower defaults. As of June 30, 2022 and December 31, 2021, the outstanding UPB of the guaranteed securities was $367.0 billion and $366.0 billion, respectively.
In addition to our securitization and other mortgage-related guarantees, we have certain other guarantees that are accounted for as derivative instruments. These other guarantees are recognized on our condensed consolidated balance sheets at fair value and not included in the totals above. See Note 8 for additional information on these guarantees.
We have the ability to commingle TBA-eligible Fannie Mae collateral in certain of our resecuritization products. When we resecuritize Fannie Mae securities in our commingled resecuritization products, our guarantee covers timely payments of principal and interest on such securities. Accordingly, commingling Fannie Mae collateral in our resecuritization transactions increases our off-balance sheet liquidity exposure as we do not have control over the Fannie Mae collateral. As of June 30, 2022 and December 31, 2021, the total amount of our off-balance sheet exposure related to Fannie Mae securities backing Freddie Mac resecuritization products was approximately $126.9 billion and $111.2 billion, respectively.
Cash and cash equivalents (including restricted cash and cash equivalents) decreased by $5.9 billion from $11.2 billion as of June 30, 2021 to $5.3 billion as of June 30, 2022, primarily driven by an increase in securities purchased under agreements to resell.
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| Freddie Mac 2Q 2022 Form 10-Q | | 41 |
| | | | | | | | |
| Management's Discussion and Analysis | | Liquidity and Capital Resources |
The table below presents activity related to our net worth.
Table 35 - Net Worth Activity | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2Q 2022 | 2Q 2021 | | YTD 2022 | YTD 2021 |
| Beginning balance | | $31,711 | | $18,791 | | | $28,033 | | $16,413 | |
| Comprehensive income (loss) | | 2,387 | | 3,611 | | | 6,065 | | 5,989 | |
| Capital draw from Treasury | | — | | — | | | — | | — | |
| Senior preferred stock dividends declared | | — | | — | | | — | | — | |
| Total equity / net worth | | $34,098 | | $22,402 | | | $34,098 | | $22,402 | |
| Remaining Treasury funding commitment | | $140,162 | | $140,162 | | | $140,162 | | $140,162 | |
| Aggregate draws under Purchase Agreement | | 71,648 | | 71,648 | | | 71,648 | | 71,648 | |
| Aggregate cash dividends paid to Treasury | | 119,680 | | 119,680 | | | 119,680 | | 119,680 | |
| Liquidation preference of the senior preferred stock | | 104,359 | | 91,439 | | | 104,359 | | 91,439 | |
FHFA has established the ERCF as a new enterprise regulatory capital framework for Freddie Mac and Fannie Mae. Our current capital levels are significantly below the levels that would be required under the ERCF. The ERCF has a transition period for compliance, and we are not required to comply with the regulatory capital requirements or the buffer requirements while in conservatorship. In general, the compliance date for the regulatory capital requirements will be the later of the date of termination of our conservatorship and any later compliance date provided in a transition order, and the compliance date for buffer requirements in the ERCF will be the date of termination of our conservatorship. Pursuant to the final rule, we are required to comply with the regulatory capital reporting requirements under the ERCF in 2022, and we filed with FHFA our initial quarterly capital report on May 27, 2022.
The ERCF establishes risk-based and leverage capital requirements and includes supplemental capital requirements relating to the amount and form of the capital we hold, based largely on definitions of capital used in U.S. banking regulators' regulatory capital framework. The ERCF capital requirements contain both statutory capital elements (total capital and core capital) and regulatory capital elements (common equity tier 1 (CET1) capital, Tier 1 capital, and adjusted total capital). The ERCF also includes a requirement that we hold prescribed capital buffers that can be drawn down in periods of financial stress and then rebuilt over time as economic conditions improve. If we fall below the prescribed buffer amounts, we must restrict capital distributions such as stock repurchases and dividends, as well as discretionary bonus payments to executives, until the buffer amounts are restored.
Risk-Based Capital Requirements
Under the ERCF risk-based capital requirements, we must maintain our CET1 capital, Tier 1 capital, and adjusted total capital ratios equal to at least 4.5%, 6%, and 8%, respectively, of risk-weighted assets. We must also maintain statutory total capital equal to at least 8% of risk-weighted assets. To avoid limits on capital distributions and discretionary bonus payments, we also must maintain CET1 capital that exceeds the risk-based capital requirements by at least the amount of the prescribed capital conservation buffer amount (PCCBA).
Leverage Capital Requirements
Under the ERCF leverage capital requirements, we must maintain our Tier 1 capital ratio equal to at least 2.5% of adjusted total assets. We must also maintain our statutory core capital ratio equal to at least 2.5% of adjusted total assets. To avoid limits on capital distributions and discretionary bonus payments, we also must maintain our Tier 1 capital that exceeds the leverage capital requirements by at least the amount of the prescribed leverage buffer amount (PLBA).
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| Freddie Mac 2Q 2022 Form 10-Q | | 42 |
| | | | | | | | |
| Management's Discussion and Analysis | | Liquidity and Capital Resources |
Capital Metrics
The table below presents our capital metrics under the ERCF.
Table 36 - Capital Metrics Under ERCF | | | | | | | | | | | | | | | | | | | | | | | | |
| (In billions) | | June 30, 2022 |
| Adjusted total assets | | $3,655 | |
| Risk-weighted assets (standardized approach) | | 845 | |
| | | | | | | | |
| (In billions) | | June 30, 2022 |
| Stress capital buffer | | $27 | |
| Stability capital buffer | | 23 | |
| Countercyclical capital buffer | | — | |
| PCCBA | | $50 | |
| PLBA | | $11 | |
| | | | | | | | |
| | | June 30, 2022 |
| (Dollars in billions) | | | Minimum
Capital
Requirement | Applicable Buffer(1) | Capital
Requirement
(Including Buffer) | Available
Capital (Deficit) | Capital
Shortfall |
| Risk-based capital amounts: | | | | | | | |
Total capital (statutory)(2) | | | $68 | | N/A | $68 | | ($33) | | ($101) | |
CET1 capital(3) | | | 38 | | $50 | | 88 | | (58) | | (146) | |
Tier 1 capital(3) | | | 50 | | 50 | | 100 | | (44) | | (144) | |
Adjusted total capital(3) | | | 67 | | 50 | | 117 | | (44) | | (161) | |
Risk-based capital ratios(4): | | | | | | | |
| Total capital (statutory) | | | 8.0 | % | N/A | 8.0 | % | (3.9) | % | (11.9) | % |
| CET1 capital | | | 4.5 | | 5.9 | % | 10.4 | | (6.9) | | (17.3) | |
| Tier 1 capital | | | 6.0 | | 5.9 | | 11.9 | | (5.2) | | (17.1) | |
| Adjusted total capital | | | 8.0 | | 5.9 | | 13.9 | | (5.2) | | (19.1) | |
| Leverage capital amounts: | | | | | | | |
Core capital (statutory)(5) | | | $92 | | N/A | $92 | | ($39) | | ($131) | |
Tier 1 capital(3) | | | 92 | | $11 | | 103 | | (44) | | (147) | |
Leverage capital ratios(6): | | | | | | | |
| Core capital (statutory) | | | 2.5 | % | N/A | 2.5 | % | (1.1) | % | (3.6) | % |
| Tier 1 capital | | | 2.5 | | 0.3 | % | 2.8 | | (1.2) | | (4.0) | |
(1)PCCBA for risk-based capital and PLBA for leverage capital.
(2)Total capital is equal to core capital plus certain allowances for credit losses.
(3)Regulatory capital amounts exclude senior preferred stock, deferred tax assets arising from temporary differences that exceed 10% of CET1 capital, and certain other items.
(4)As a percentage of risk-weighted assets.
(5)Core capital excludes certain components of GAAP total equity (i.e., AOCI and senior preferred stock) as these items do not meet the statutory definition of core capital.
(6)As a percentage of adjusted total assets.
At June 30, 2022, our maximum payout ratio under the ERCF was 0.0%.
See Note 15 for additional information on our amounts of capital and ratios under the ERCF. See MD&A - Regulation and Supervision - Legislative and Regulatory Developments - Final Rule on ERCF Public Disclosures and MD&A - Regulation and Supervision - Legislative and Regulatory Developments - Final Rule on Capital Planning for additional information on amendments to the ERCF published in June 2022.
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| Freddie Mac 2Q 2022 Form 10-Q | | 43 |
| | | | | | | | |
| Management's Discussion and Analysis | | Critical Accounting Estimates |
CRITICAL ACCOUNTING ESTIMATES
Our critical accounting estimates and policies relate to the Single-Family allowance for credit losses. For additional information about our critical accounting estimates and other significant accounting policies, see Note 1 and Critical Accounting Estimates in our 2021 Annual Report.
Single-Family Allowance for Credit Losses
The Single-Family allowance for credit losses represents our estimate of expected credit losses over the contractual term of the mortgage loans. The Single-Family allowance for credit losses pertains to all held-for-investment single-family mortgage loans on our condensed consolidated balance sheets.
Determining the appropriateness of the Single-Family allowance for credit losses is a complex process that is subject to numerous estimates and assumptions requiring significant management judgment about matters that involve a high degree of subjectivity. This process involves the use of models that require us to make judgments about matters that are difficult to predict, the most significant of which are the probability of default and severity of expected credit losses.
Changes in forecasted house price growth rates can have a significant effect on our allowance for credit losses. The table below shows our nationwide forecasted house price growth rates that were used in determining our allowance for credit losses. See Note 5 for additional information regarding our current period benefit (provision) for credit losses and estimation process.
Table 37 - Forecasted House Price Growth Rates | | | | | | | | | | | |
| | 2022 | 2023 |
June 30, 2022(1) | | 12.8 | % | 4.0 | % |
March 31, 2022(1) | | 10.4 | | 5.0 | |
| December 31, 2021 | | 6.2 | | 2.5 | |
(1)Current year forecast includes actual rates observed in the prior months.
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| Freddie Mac 2Q 2022 Form 10-Q | | 44 |
| | | | | | | | |
| Management's Discussion and Analysis | Regulation and Supervision |
REGULATION AND SUPERVISION
In addition to oversight by FHFA as our Conservator, we are subject to regulation and oversight by FHFA under our Charter and the GSE Act and to certain regulation by other government agencies. Furthermore, regulatory activities by other government agencies can affect us indirectly, even if we are not directly subject to such agencies' regulation or oversight. For example, regulations that modify requirements applicable to the purchase or servicing of mortgages can affect us.
Federal Housing Finance Agency
Equitable Housing Finance Plan On June 8, 2022, FHFA announced the public release of the Enterprises’ Equitable Housing Finance Plans for 2022-2024. The 2022-2024 plan activities are intended to identify and address barriers experienced by renters, aspiring homeowners, and current homeowners – particularly in traditionally underserved minority communities, including using special purpose credit programs to originate loans. The plan activities will be updated annually.
Additionally, FHFA has created a pilot transparency framework for the Enterprises to accompany these plans. This framework requires Freddie Mac and Fannie Mae to publish and maintain a list of pilots and test-and-learn activities on their public websites, which is intended to provide accountability in determining whether such activities are working to address the disparities identified in the Equitable Housing Finance Plans.
Resecuritization Fee for New Issuances of Commingled Securities On June 14, 2022, we announced that, as a result of the recently implemented ERCF, Freddie Mac will begin to charge a 50 basis point fee for any newly-issued commingled security. The fee is effective for applicable commingled securities issued on or after July 1, 2022. Freddie Mac will apply the fee to collateral issued by Fannie Mae, at the time that such collateral is used for a new commingled security. Freddie Mac will not apply the fee to any Freddie Mac-issued collateral used for a new commingled security.
In June 2022, FHFA announced that it will explore alternatives to this fee to support the continued function and long-term viability of UMBS and the TBA market, including conducting a review of the ERCF in the near term to ensure that the risks of commingled securities are appropriately reflected. As directed by FHFA, the Enterprises are retaining the fee covering the collateral of the other Enterprise in commingled securities.
Legislative and Regulatory Developments
Final Rule on ERCF Public Disclosures On June 2, 2022, FHFA published a final rule that amends the ERCF by introducing new public disclosure requirements for the Enterprises. The requirements include quarterly quantitative and annual qualitative disclosures related to risk management, corporate governance, capital structure, and capital requirements and buffers under the standardized approach. The required public disclosures cover 11 categories, with each category containing certain qualitative and quantitative disclosures, many of which are identical or similar to the disclosures applicable to U.S. banking organizations subject to the standardized approach. The compliance date for our first public disclosures under the new requirements is no later than 10 business days after we file our Annual Report on Form 10-K for the year ending December 31, 2022.
Final Rule on Capital Planning On June 3, 2022, FHFA published a final rule that supplements the ERCF by requiring the Enterprises to submit annual capital plans to FHFA and provide prior notice for certain capital actions. The final rule also incorporates the determination of the stress capital buffer, an element of the ERCF, into the capital planning process. Under the final rule, we must submit our first capital plan to FHFA by May 20, 2023.
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| Freddie Mac 2Q 2022 Form 10-Q | | 45 |
| | | | | | | | |
| Management's Discussion and Analysis | Forward-Looking Statements |
FORWARD-LOOKING STATEMENTS
We regularly communicate information concerning our business activities to investors, the news media, securities analysts, and others as part of our normal operations. Some of these communications, including this Form 10-Q, contain "forward-looking statements." Examples of forward-looking statements include, but are not limited to, statements pertaining to the conservatorship, our current expectations and objectives for the Single-Family and Multifamily segments of our business, our efforts to assist the housing market, our liquidity and capital management, economic and market conditions and trends, our market share, the effect of legislative and regulatory developments and new accounting guidance, the credit quality of loans we own or guarantee, the costs and benefits of our CRT transactions, the effects of natural disasters, other catastrophic events, including the COVID-19 pandemic, and significant climate change effects and actions taken in response thereto on our business, and our results of operations and financial condition. Forward-looking statements involve known and unknown risks and uncertainties, some of which are beyond our control. Forward-looking statements are often accompanied by, and identified with, terms such as "could," "may," "will," "believe," "expect," "anticipate," "forecast," and similar phrases. These statements are not historical facts, but rather represent our expectations based on current information, plans, judgments, assumptions, estimates, and projections. Actual results may differ significantly from those described in or implied by such forward-looking statements due to various factors and uncertainties, including those described in the Risk Factors section in our 2021 Annual Report, and including, without limitation, the following:
n The actions the U.S. government (including FHFA, Treasury, and Congress) may take, require us to take, or restrict us from taking, including actions to support the housing market, such as programs implemented in response to the COVID-19 pandemic or to implement the recommendations in FHFA's Conservatorship Scorecards, recent requirements and guidance related to equitable housing, and other objectives for us;
n Changes in the fiscal and monetary policies of the Federal Reserve, including changes in target interest rates and in the amount of agency MBS and agency CMBS held by the Federal Reserve;
n Uncertainty regarding the duration and severity of the COVID-19 pandemic and the effects of the pandemic and actions taken in response thereto on the U.S. economy and housing market, which could, in turn, adversely affect our business in numerous ways, including, for example, by increasing our credit losses, impairing the value of our mortgage-related securities, decreasing our liquidity and capital levels, and increasing our credit risk and operational risk;
n The effect of the restrictions on our business due to the conservatorship and the Purchase Agreement;
n Changes in our Charter, applicable legislative or regulatory requirements (including any legislation affecting the future status of our company), or the Purchase Agreement;
n Changes to our capital requirements and potential effects of such changes on our business strategies;
n Changes in tax laws;
n Changes in privacy and cybersecurity laws and regulations;
n Changes in accounting policies, practices, or guidance;
n Changes in economic and market conditions generally, and as a result of the COVID-19 pandemic, including changes in employment rates, inflation, interest rates, spreads, and house prices;
n Changes in the U.S. residential mortgage market, including changes in the supply and type of loan products (e.g., refinance vs. purchase and fixed-rate vs. ARM);
n The success of our efforts to mitigate our losses on our Single-Family mortgage portfolio;
n The success of our strategy to transfer mortgage credit risk through STACR, ACIS, K Certificate, SB Certificate, and other CRT transactions;
n Our ability to maintain adequate liquidity to fund our operations;
n Our ability to maintain the security and resiliency of our operational systems and infrastructure, including against cyberattacks or other security incidents;
n Our ability to effectively execute our business strategies, implement new initiatives, and improve efficiency;
n The adequacy of our risk management framework, including the adequacy of our capital framework for measuring risk;
n Our ability to manage mortgage credit risk, including the effect of changes in underwriting and servicing practices;
n Our ability to limit or manage our economic exposure and GAAP earnings exposure to interest-rate volatility and spread volatility, including the availability of derivative financial instruments needed for interest-rate risk management purposes and our ability to apply hedge accounting;
n Our operational ability to issue new securities, make timely and correct payments on securities, and provide initial and ongoing disclosures;
n Our reliance on CSS and the CSP for the operation of the majority of our Single-Family securitization activities, limits on our influence over CSS Board decisions, and any additional changes FHFA may require in our relationship with, or support of, CSS;
n Changes in the methodologies, models, assumptions, and estimates we use to prepare our financial statements, make
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 46 |
| | | | | | | | |
| Management's Discussion and Analysis | Forward-Looking Statements |
business decisions, and manage risks;
n Changes in investor demand for our debt or mortgage-related securities;
n Our ability to maintain market acceptance of the UMBS, including our ability to maintain alignment of the prepayment speeds of our and Fannie Mae's respective UMBS;
n Changes in the practices of loan originators, servicers, investors, and other participants in the secondary mortgage market;
n Competition from other market participants, which could affect the pricing we offer for our products, the credit characteristics of the loans we purchase, and our ability to meet our affordable housing goals;
n The discontinuance of, transition from, or replacement of LIBOR and the adverse consequences it could have on our business and operations;
n The availability of critical third parties, or their vendors and other business partners, to deliver products or services, or to manage risks effectively;
n The occurrence of a major natural disaster, other catastrophic event, or significant climate change effects in areas in which our offices, significant portions of our total mortgage portfolio, or the offices of critical third parties are located, and for which we may be uninsured or significantly underinsured; and
n Other factors and assumptions described in this Form 10-Q and our 2021 Annual Report, including in the MD&A section.
Forward-looking statements are made only as of the date of this Form 10-Q, and we undertake no obligation to update any forward-looking statements we make to reflect events or circumstances occurring after the date of this Form 10-Q.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 47 |
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 48 |
| | | | | |
| Financial Statements | Condensed Consolidated Statements of Operations and Comprehensive Income |
FREDDIE MAC
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) | | | | | | | | | | | | | | | | | | | | |
(In millions, except share-related amounts) | | 2Q 2022 | 2Q 2021 | | YTD 2022 | YTD 2021 |
| Net interest income | | | | | | |
| Interest income | | $20,008 | | $15,230 | | | $37,748 | | $29,132 | |
| Interest expense | | (15,249) | | (10,463) | | | (28,885) | | (20,726) | |
| Net interest income | | 4,759 | | 4,767 | | | 8,863 | | 8,406 | |
| | | | | | |
| Non-interest income (loss) | | | | | | |
| Guarantee income | | 205 | | 356 | | | 275 | | 604 | |
| Investment gains (losses), net | | 321 | | 636 | | | 1,834 | | 1,844 | |
| Other income (loss) | | 119 | | 107 | | | 278 | | 285 | |
| Non-interest income (loss) | | 645 | | 1,099 | | | 2,387 | | 2,733 | |
| Net revenues | | 5,404 | | 5,866 | | | 11,250 | | 11,139 | |
| | | | | | |
| Benefit (provision) for credit losses | | (307) | | 740 | | | 530 | | 936 | |
| | | | | | |
| Non-interest expense | | | | | | |
| Salaries and employee benefits | | (376) | | (346) | | | (732) | | (690) | |
| | | | | | |
| | | | | | |
| Credit enhancement expense | | (558) | | (369) | | | (1,017) | | (704) | |
| Benefit for (decrease in) credit enhancement recoveries | | (1) | | (193) | | | (18) | | (450) | |
| | | | | | |
| Legislative assessments expense | | (748) | | (696) | | | (1,507) | | (1,387) | |
| Other expense | | (337) | | (365) | | | (678) | | (726) | |
| Non-interest expense | | (2,020) | | (1,969) | | | (3,952) | | (3,957) | |
| | | | | | |
| Income (loss) before income tax (expense) benefit | | 3,077 | | 4,637 | | | 7,828 | | 8,118 | |
| Income tax (expense) benefit | | (624) | | (958) | | | (1,577) | | (1,672) | |
| Net income (loss) | | 2,453 | | 3,679 | | | 6,251 | | 6,446 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Other comprehensive income (loss), net of taxes and reclassification adjustments | | (66) | | (68) | | | (186) | | (457) | |
| Comprehensive income (loss) | | $2,387 | | $3,611 | | | $6,065 | | $5,989 | |
| | | | | | |
| Net income (loss) | | $2,453 | | $3,679 | | | $6,251 | | $6,446 | |
| Future increase in senior preferred stock liquidation preference | | (2,387) | | (3,611) | | | (6,065) | | (5,989) | |
| Net income (loss) attributable to common stockholders | | $66 | | $68 | | | $186 | | $457 | |
| Net income (loss) per common share | | $0.02 | | $0.02 | | | $0.06 | | $0.14 | |
| Weighted average common shares outstanding (in millions) | | 3,234 | | 3,234 | | | 3,234 | | 3,234 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 49 |
| | | | | |
| Financial Statements | Condensed Consolidated Balance Sheets |
FREDDIE MAC
Condensed Consolidated Balance Sheets (Unaudited)
| | | | | | | | | | | |
| | June 30, | December 31, |
(In millions, except share-related amounts) | | 2022 | 2021 |
| Assets | | | |
Cash and cash equivalents (includes $855 and $1,695 of restricted cash and cash equivalents) | | $5,257 | | $10,150 | |
| Securities purchased under agreements to resell | | 86,496 | | 71,203 | |
| Investment securities, at fair value | | 48,937 | | 53,015 | |
Mortgage loans held-for-sale (includes $5,670 and $10,498 at fair value) | | 12,340 | | 19,778 | |
Mortgage loans held-for-investment (net of allowance for credit losses of $4,939 and $4,947) | | 2,954,524 | | 2,828,331 | |
| Accrued interest receivable, net | | 7,871 | | 7,474 | |
| Deferred tax assets, net | | 5,552 | | 6,214 | |
Other assets (includes $6,419 and $6,594 at fair value) | | 24,604 | | 29,421 | |
| Total assets | | $3,145,581 | | $3,025,586 | |
| Liabilities and equity | | | |
| Liabilities | | | |
| Accrued interest payable | | $6,594 | | $6,268 | |
Debt (includes $3,605 and $2,478 at fair value) | | 3,093,178 | | 2,980,185 | |
Other liabilities (includes $1,079 and $287 at fair value) | | 11,711 | | 11,100 | |
| Total liabilities | | 3,111,483 | | 2,997,553 | |
| Commitments and contingencies (Notes 4, 8, 14) | | | |
| Equity | | | |
Senior preferred stock (liquidation preference of $104,359 and $97,959) | | 72,648 | | 72,648 | |
| Preferred stock, at redemption value | | 14,109 | | 14,109 | |
Common stock, $0.00 par value, 4,000,000,000 shares authorized, 725,863,886 shares issued and 650,059,553 shares outstanding | | — | | — | |
| | | |
| Retained earnings (accumulated deficit) | | (48,742) | | (54,993) | |
| AOCI, net of taxes, related to: | | | |
| Available-for-sale securities | | 107 | | 297 | |
| Other | | (139) | | (143) | |
| AOCI, net of taxes | | (32) | | 154 | |
Treasury stock, at cost, 75,804,333 shares | | (3,885) | | (3,885) | |
Total equity | | 34,098 | | 28,033 | |
| Total liabilities and equity | | $3,145,581 | | $3,025,586 | |
The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on our condensed consolidated balance sheets.
| | | | | | | | | | | |
| | June 30, | December 31, |
| (In millions) | | 2022 | 2021 |
| | | |
| Assets: | | | |
| | | |
Cash and cash equivalents (includes $755 and $1,595 of restricted cash and cash equivalents) | | $756 | $1,596 | |
| Securities purchased under agreements to resell | | 18,400 | 34,000 | |
| Investment securities, at fair value | | 148 | 420 | |
| Mortgage loans held-for-investment, net | | 2,913,414 | 2,784,626 | |
| Accrued interest receivable, net | | 7,410 | 7,019 | |
| Other assets | | 7,469 | 11,265 | |
| Total assets of consolidated VIEs | | $2,947,597 | $2,838,926 |
| Liabilities: | | | |
| Accrued interest payable | | $6,175 | | $5,823 | |
| Debt | | 2,934,115 | | 2,803,054 | |
| | | |
| Total liabilities of consolidated VIEs | | $2,940,290 | | $2,808,877 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 50 |
| | | | | |
| Financial Statements | Condensed Consolidated Statements of Equity |
FREDDIE MAC
Condensed Consolidated Statements of Equity (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares Outstanding | Senior Preferred Stock | Preferred Stock, at Redemption Value | Common Stock, at Par Value | Retained Earnings (Accumulated Deficit) | AOCI, Net of Tax | Treasury
Stock, at
Cost | Total Equity |
| (In millions) | | Senior Preferred Stock | Preferred Stock | Common Stock |
| Balance at March 31, 2022 | | 1 | | 464 | | 650 | | $72,648 | | $14,109 | | $— | | ($51,195) | | $34 | | ($3,885) | | $31,711 | |
| Comprehensive income (loss): | | | | | | | | | | | |
| Net income (loss) | | — | | — | | — | | — | | — | | — | | 2,453 | | — | | — | | 2,453 | |
| Other comprehensive income (loss): | | | | | | | | | | | |
Changes in net unrealized gains (losses) on available-for-sale securities (net of taxes of $19 million) | | — | | — | | — | | — | | — | | — | | — | | (71) | | — | | (71) | |
Reclassification adjustment for gains on available-for-sale securities included in net income (net of taxes of $1 million) | | — | | — | | — | | — | | — | | — | | — | | 3 | | — | | 3 | |
Other (net of taxes of $1 million) | | — | | — | | — | | — | | — | | — | | — | | 2 | | — | | 2 | |
| Comprehensive income (loss) | | — | | — | | — | | — | | — | | — | | 2,453 | | (66) | | — | | 2,387 | |
| Ending balance at June 30, 2022 | | 1 | | 464 | | 650 | | $72,648 | | $14,109 | | $— | | ($48,742) | | ($32) | | ($3,885) | | $34,098 | |
| | | | | | | | | | | |
| Balance at March 31, 2021 | | 1 | | 464 | | 650 | | $72,648 | | $14,109 | | $— | | ($64,335) | | $254 | | ($3,885) | | $18,791 | |
| Comprehensive income (loss): | | | | | | | | | | | |
| Net income (loss) | | — | | — | | — | | — | | — | | — | | 3,679 | | — | | — | | 3,679 | |
| Other comprehensive income (loss): | | | | | | | | | | | |
Changes in net unrealized gains (losses) on available-for-sale securities (net of taxes of $2 million) | | — | | — | | — | | — | | — | | — | | — | | 6 | | — | | 6 | |
Reclassification adjustment for gains on available-for-sale securities included in net income (net of taxes of $20 million) | | — | | — | | — | | — | | — | | — | | — | | (79) | | — | | (79) | |
Other (net of taxes of $1 million) | | — | | — | | — | | — | | — | | — | | — | | 5 | | — | | 5 | |
| Comprehensive income (loss) | | — | | — | | — | | — | | — | | — | | 3,679 | | (68) | | — | | 3,611 | |
| Ending balance at June 30, 2021 | | 1 | | 464 | | 650 | | $72,648 | | $14,109 | | $— | | ($60,656) | | $186 | | ($3,885) | | $22,402 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares Outstanding | Senior Preferred Stock | Preferred Stock, at Redemption Value | Common Stock, at Par Value | Retained Earnings (Accumulated Deficit) | AOCI, Net of Tax | Treasury Stock, at Cost | Total Equity |
| (In millions) | | Senior Preferred Stock | Preferred Stock | Common Stock |
| Balance at December 31, 2021 | | 1 | | 464 | | 650 | | $72,648 | | $14,109 | | $— | | ($54,993) | | $154 | | ($3,885) | | $28,033 | |
| Comprehensive income (loss): | | | | | | | | | | | |
| Net income (loss) | | — | | — | | — | | — | | — | | — | | 6,251 | | — | | — | | 6,251 | |
| Other comprehensive income (loss): | | | | | | | | | | | |
Changes in net unrealized gains (losses) on available-for-sale securities (net of taxes of $52 million) | | — | | — | | — | | — | | — | | — | | — | | (194) | | — | | (194) | |
Reclassification adjustment for gains on available-for-sale securities included in net income (net of taxes of $1 million) | | — | | — | | — | | — | | — | | — | | — | | 4 | | — | | 4 | |
Other (net of taxes of $1 million) | | — | | — | | — | | — | | — | | — | | — | | 4 | | — | | 4 | |
| Comprehensive income (loss) | | — | | — | | — | | — | | — | | — | | 6,251 | | (186) | | — | | 6,065 | |
| Ending balance at June 30, 2022 | | 1 | | 464 | | 650 | | $72,648 | | $14,109 | | $— | | ($48,742) | | ($32) | | ($3,885) | | $34,098 | |
| | | | | | | | | | | |
| Balance at December 31, 2020 | | 1 | | 464 | | 650 | | $72,648 | | $14,109 | | $— | | ($67,102) | | $643 | | ($3,885) | | $16,413 | |
| Comprehensive income (loss): | | | | | | | | | | | |
| Net income (loss) | | — | | — | | — | | — | | — | | — | | 6,446 | | — | | — | | 6,446 | |
| Other comprehensive income (loss): | | | | | | | | | | | |
Changes in net unrealized gains (losses) on available-for-sale securities (net of taxes of $26 million) | | — | | — | | — | | — | | — | | — | | — | | (99) | | — | | (99) | |
Reclassification adjustment for gains on available-for-sale securities included in net income (net of taxes of $98 million) | | — | | — | | — | | — | | — | | — | | — | | (369) | | — | | (369) | |
Other (net of taxes of $1 million) | | — | | — | | — | | — | | — | | — | | — | | 11 | | — | | 11 | |
| Comprehensive income (loss) | | — | | — | | — | | — | | — | | — | | 6,446 | | (457) | | — | | 5,989 | |
| Ending balance at June 30, 2021 | | 1 | | 464 | | 650 | | $72,648 | | $14,109 | | $— | | ($60,656) | | $186 | | ($3,885) | | $22,402 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 51 |
| | | | | |
| Financial Statements | Condensed Consolidated Statements of Cash Flows |
FREDDIE MAC
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | | | | | | | | | | |
| (In millions) | | YTD 2022 | YTD 2021 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Net cash provided by (used in) operating activities | | $7,783 | | $16,070 | |
| Cash flows from investing activities | | | |
| Purchases of investment securities | | (80,629) | | (70,102) | |
| Proceeds from sales of investment securities | | 74,416 | | 88,885 | |
| Proceeds from maturities and repayments of investment securities | | 7,993 | | 3,879 | |
| Purchases of mortgage loans acquired as held-for-investment | | (96,257) | | (367,336) | |
| Proceeds from sales of mortgage loans acquired as held-for-investment | | 2,159 | | 5,199 | |
| Proceeds from repayments of mortgage loans acquired as held-for-investment | | 211,698 | | 414,680 | |
| Advances under secured lending arrangements | | (104,516) | | (112,980) | |
| Repayments of secured lending arrangements | | 363 | | 92 | |
| Net proceeds from dispositions of real estate owned and other recoveries | | 130 | | 144 | |
| Net (increase) decrease in securities purchased under agreements to resell | | (17,889) | | (13,314) | |
| Derivative premiums and terminations, swap collateral, and exchange settlement payments, net | | 3,424 | | 1,113 | |
| Other, net | | (367) | | (303) | |
| Net cash provided by (used in) investing activities | | 525 | | (50,043) | |
| Cash flows from financing activities | | | |
| Proceeds from issuance of debt of consolidated trusts | | 231,938 | | 501,890 | |
| Repayments and redemptions of debt of consolidated trusts | | (234,680) | | (429,404) | |
| Proceeds from issuance of debt of Freddie Mac | | 24,803 | | 23,153 | |
| Repayments of debt of Freddie Mac | | (37,903) | | (79,001) | |
| Net increase (decrease) in securities sold under agreements to repurchase | | 2,644 | | 4,620 | |
| Other, net | | (3) | | (3) | |
| Net cash provided by (used in) financing activities | | (13,201) | | 21,255 | |
| Net increase (decrease) in cash and cash equivalents (includes restricted cash and cash equivalents) | | (4,893) | | (12,718) | |
| Cash and cash equivalents (includes restricted cash and cash equivalents) at beginning of year | | 10,150 | | 23,889 | |
| Cash and cash equivalents (includes restricted cash and cash equivalents) at end of period | | $5,257 | | $11,171 | |
| | | |
| Supplemental cash flow information | | | |
| Cash paid for: | | | |
| Debt interest | | $36,287 | | $34,301 | |
| Income taxes | | 1,500 | | 2,590 | |
| Non-cash investing and financing activities (Note 3 and 6) | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements. | | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 52 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 1 |
Notes to Condensed Consolidated Financial Statements
NOTE 1
Summary of Significant Accounting Policies
Freddie Mac is a GSE chartered by Congress in 1970, with a mission to provide liquidity, stability, and affordability to the U.S. housing market. We are regulated by FHFA, the SEC, HUD, and Treasury, and are currently operating under the conservatorship of FHFA. The conservatorship and related matters significantly affect our management, business activities, financial condition, and results of operations. In connection with our entry into conservatorship, we entered into the Purchase Agreement with Treasury, under which we issued Treasury both senior preferred stock and a warrant to purchase common stock. Our Purchase Agreement with Treasury is critical to keeping us solvent and avoiding the appointment of a receiver by FHFA under statutory mandatory receivership provisions. We believe the support provided by Treasury pursuant to the Purchase Agreement currently enables us to have adequate liquidity to conduct normal business activities. For more information on the conservatorship, the roles of FHFA and Treasury, and the Purchase Agreement, see our 2021 Annual Report. Throughout our unaudited condensed consolidated financial statements and related notes, we use certain acronyms and terms which are defined in the Glossary of our 2021 Annual Report.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in our 2021 Annual Report.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and include our accounts as well as the accounts of other entities in which we have a controlling financial interest. All intercompany balances and transactions have been eliminated.
We are operating under the basis that we will realize assets and satisfy liabilities in the normal course of business as a going concern and in accordance with the authority provided by FHFA to our Board of Directors to oversee management's conduct of our business operations. In the opinion of management, our unaudited consolidated financial statements contain all adjustments, which include only normal recurring adjustments, necessary for a fair statement of our results.
We have reclassified certain amounts within non-interest expense in our condensed consolidated statement of operations to better present the significant drivers of our non-interest expense activity. Prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not change the total amounts of non-interest expense, net income, or comprehensive income in any period presented.
The preparation of our condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements. Management has made significant estimates to report the allowance for credit losses on single-family mortgage loans. Actual results could be different from these estimates.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 53 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 1 |
Recently Issued Accounting Guidance
| | | | | | | | | | | |
| Recently Adopted Accounting Guidance |
| Standard | Description | Date of
Adoption | Effect on Consolidated Financial Statements |
ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options | The amendments in this Update require issuers to account for modifications or exchanges of freestanding equity-classified written call options based on the reason for the modification or exchange, to issue equity, to issue or modify debt, or for other reasons. | January 1, 2022 | The adoption of the amendments did not have a material effect on our consolidated financial statements. |
ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures | The amendments in this Update eliminate the recognition and measurement guidance related to TDRs in ASC Subtopic 310-40 for entities that have adopted ASC Topic 326.
The amendments in this Update also require disclosure of current period gross write-offs by year of origination for financing receivables within the scope of ASC Subtopic 326-20. | January 1, 2022 for the amendments related to the elimination of the recognition and measurement of TDRs;
January 1, 2023 for the amendments related to disclosure of gross write-offs by year of origination. | We elected to early adopt the amendments related to the elimination of the recognition and measurement of TDRs on January 1, 2022 on a prospective basis. This change did not have a material effect on our consolidated financial statements. See Note 3 for additional information on the adoption of these amendments and the new required disclosures.
We do not expect the adoption of the amendments related to disclosure of gross write-offs by year of origination to have a material effect on our consolidated financial statements. |
| | | | | | | | | | | |
| Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements |
| Standard | Description | Date of
Adoption | Effect on Consolidated Financial Statements |
ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer method | The amendments in this Update provide clarifications of the guidance in ASC Topic 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. The ASU amends the guidance in ASU 2017-12 that, among other things, establishes the "last-of-layer" method for making the fair value hedge accounting for these portfolios more accessible by allowing the entities to apply the portfolio layer method to portfolios of all financial assets, including both prepayable and nonprepayable financial assets. | January 1, 2023 | We do not expect the adoption of these amendments to have a material effect on our consolidated financial statements. |
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 54 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 2 |
NOTE 2
Securitization Activities and Consolidation
The following table presents the carrying amounts and classification of the assets and liabilities recorded on our condensed consolidated balance sheets related to VIEs for which we are not the primary beneficiary and with which we were involved in the design and creation and have a significant continuing involvement. Our involvement with such VIEs primarily consists of investments in debt securities issued by resecuritization trusts and guarantees of senior securities issued by certain Multifamily securitization trusts.
Table 2.1 - Nonconsolidated VIEs
| | | | | | | | | | | |
(In millions) | | June 30, 2022 | December 31, 2021 |
Assets and Liabilities Recorded on our Condensed Consolidated Balance Sheets(1) | | | |
Assets: | | | |
| Investment securities, at fair value | | $15,781 | | $16,506 | |
| Accrued interest receivable, net | | 217 | | 220 | |
Other assets(2) | | 5,378 | | 5,589 | |
Liabilities: | | | |
| Debt | | 128 | | 67 | |
Other liabilities(2) | | 5,677 | | 5,172 | |
(1)Includes our variable interests in REMICs, Strips, commingled Supers, K Certificates, SB Certificates, certain senior subordinate securitization structures, and other securitization products that we do not consolidate.
(2)Includes our guarantee asset in other assets and our guarantee obligation in other liabilities.
The table below presents total assets and the maximum exposure to loss of the VIEs for which we are not the primary beneficiary and therefore do not consolidate.
Table 2.2 - Total Assets and Maximum Exposure to Loss for our Nonconsolidated VIEs(1)
| | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| (In millions) | | Total Assets | Maximum Exposure(2) | | Total Assets | Maximum Exposure(2) |
| Securitization Activities | | | | | | |
| Single-Family: | | | | | | |
Other securitization products(3) | | $32,554 | | $26,883 | | | $33,603 | | $27,975 | |
| Multifamily: | | | | | | |
| K Certificates | | 324,365 | | 285,991 | | | 321,149 | | 281,910 | |
| SB Certificates | | 24,750 | | 22,166 | | | 24,944 | | 22,389 | |
| Other securitization products | | 15,704 | | 13,846 | | | 16,683 | | 14,772 | |
| | | | | | |
| CRT Activities | | 30,521 | | 19 | | | 23,605 | | 44 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(1)Excludes resecuritization products.
(2)For securitization activities, the maximum exposure primarily represents the contractual amounts that could be lost if counterparties or borrowers defaulted, without consideration of proceeds from related collateral liquidation and possible recoveries under credit enhancements. For CRT activities, the maximum exposure represents our recorded expected recovery receivable.
(3)Total assets excludes certain nonfinancial assets held by the VIEs.
In addition, the UPB of Fannie Mae securities underlying commingled Freddie Mac resecuritization trusts for which we are not the primary beneficiary totaled $126.8 billion and $110.8 billion as of June 30, 2022 and December 31, 2021, respectively. As a result of the recently implemented ERCF, we charge a 50 basis point fee for any commingled security issued on or after July 1, 2022. We apply the fee to collateral issued by Fannie Mae, at the time that such collateral is used for a new commingled security. See Note 4 for additional information on our guarantee of Fannie Mae securities.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 55 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 2 |
We also obtain interests in various other entities created by third parties through the normal course of business that may be VIEs, such as through our investments in certain non-Freddie Mac mortgage-related securities, purchases of multifamily loans, guarantees of multifamily housing revenue bonds, as a derivative counterparty, or through other activities. To the extent that we were not involved in the design or creation of these VIEs, they are excluded from the tables above. Our interests in these VIEs are generally passive in nature and are not expected to result in us obtaining a controlling financial interest in these VIEs in the future. As a result, we do not consolidate these VIEs and we account for our interests in these VIEs in the same manner that we account for our interests in other third-party transactions. See Note 6 for additional information regarding our investments in non-Freddie Mac mortgage-related securities. See Note 3 for more information regarding multifamily loans.
We do not believe the maximum exposure to loss from our involvement with VIEs for which we are not the primary beneficiary shown above is representative of the actual loss we are likely to incur, based on our historical loss experience and after consideration of proceeds from related collateral liquidation, including possible recoveries under credit enhancements. Certain of our interest-rate risk-related guarantees to VIEs for which we are not the primary beneficiary may create exposure to loss that is unlimited. We account for these interest-rate risk-related guarantees at fair value as discussed further in Note 4 and generally reduce our exposure to these guarantees with unlimited interest rate exposure through separate derivative contracts with third parties. See Note 8 for additional information on derivatives.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 56 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 3 |
NOTE 3
Mortgage Loans
The table below provides details of the loans on our condensed consolidated balance sheets.
Table 3.1 - Mortgage Loans | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| (In millions) | | Single-Family | Multifamily | Total | | Single-Family | Multifamily | Total |
| | | | | | | | |
| Held-for-sale UPB | | $4,086 | | $9,302 | | $13,388 | | | $5,446 | | $14,871 | | $20,317 | |
| Cost basis and fair value adjustments, net | | (713) | | (335) | | (1,048) | | | (813) | | 274 | | (539) | |
| Total held-for-sale loans, net | | 3,373 | | 8,967 | | 12,340 | | | 4,633 | | 15,145 | | 19,778 | |
| Held-for-investment UPB | | 2,881,547 | | 30,585 | | 2,912,132 | | | 2,742,851 | | 26,657 | | 2,769,508 | |
| Cost basis adjustments | | 47,271 | | 60 | | 47,331 | | | 63,684 | | 86 | | 63,770 | |
| Allowance for credit losses | | (4,904) | | (35) | | (4,939) | | | (4,913) | | (34) | | (4,947) | |
Total held-for-investment loans, net | | 2,923,914 | | 30,610 | | 2,954,524 | | | 2,801,622 | | 26,709 | | 2,828,331 | |
| Total mortgage loans, net | | $2,927,287 | | $39,577 | | $2,966,864 | | | $2,806,255 | | $41,854 | | $2,848,109 | |
For the purposes of certain single-family mortgage loan disclosures below, we present loans by class of financing receivable type. Financing receivable classes used for disclosure consist of: "20- and 30-year or more, amortizing fixed-rate," "15-year or less, amortizing fixed-rate," and "adjustable-rate and other." The "other" class consists of Alt-A, interest-only, and option ARM loans.
The table below provides details of the UPB of loans we purchased and sold during the periods presented.
Table 3.2 - Loans Purchased and Sold | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2Q 2022 | 2Q 2021 | | YTD 2022 | YTD 2021 |
| Single-Family: | | | | | | |
| Purchases: | | | | | | |
Held-for-investment loans | | $137,665 | | $287,096 | | | $344,600 | | $647,668 | |
Sale of held-for-sale loans(1) | | 1,429 | | 3,037 | | | 1,444 | | 3,037 | |
Multifamily: | | | | | | |
| Purchases: | | | | | | |
Held-for-investment loans | | 2,957 | | 1,299 | | | 5,522 | | 2,920 | |
Held-for-sale loans | | 11,372 | | 11,543 | | | 23,639 | | 23,836 | |
Sale of held-for-sale loans(2) | | 14,899 | | 17,718 | | | 29,191 | | 38,831 | |
(1)Our sales of single-family loans reflect the sale of single-family seasoned loans.
(2)Our sales of multifamily loans occur primarily through the issuance of Multifamily K Certificates and SB Certificates.
The table below presents the allowance for credit losses or valuation allowance that was reversed or established due to loan reclassifications between held-for-investment and held-for-sale during the periods presented.
Table 3.3 - Loan Reclassifications | | | | | | | | | | | | | | | | | | | | | | | |
| | 2Q 2022 | 2Q 2021 |
| (In millions) | | UPB | Allowance for Credit Losses Reversed or (Established) | Valuation Allowance (Established) or Reversed | UPB | Allowance for Credit Losses Reversed or (Established) | Valuation Allowance (Established) or Reversed |
| Single-Family reclassifications from: | | | | | | | |
| Held-for-investment to held-for-sale | | $325 | | $10 | | $— | | $469 | | $28 | | $— | |
Held-for-sale to held-for-investment(1) | | 75 | | (4) | | 3 | | 67 | | 6 | | — | |
| Multifamily reclassifications from: | | | | | | | |
| Held-for-investment to held-for-sale | | 386 | | 1 | | — | | 1,202 | | 5 | | — | |
| Held-for-sale to held-for-investment | | 39 | | — | | — | | 12 | | — | | — | |
Referenced footnote is included after the year-to-date table.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 57 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 3 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | YTD 2022 | YTD 2021 |
| (In millions) | | UPB | Allowance for Credit Losses Reversed or (Established) | Valuation Allowance (Established) or Reversed | UPB | Allowance for Credit Losses Reversed or (Established) | Valuation Allowance (Established) or Reversed |
| Single-family reclassifications from: | | | | | | | |
| Held-for-investment to held-for-sale | | $573 | | $10 | | $— | | $970 | | $35 | | $— | |
Held-for-sale to held-for-investment(1) | | 137 | | (7) | | 3 | | 102 | | 9 | | — | |
| Multifamily reclassifications from: | | | | | | | |
| Held-for-investment to held-for-sale | | 701 | | 1 | | — | | 1,730 | | 6 | | — | |
| Held-for-sale to held-for-investment | | 285 | | — | | — | | 21 | | — | | — | |
(1)Allowance for credit losses established upon loan reclassification from held-for-sale to held-for-investment to reflect the net amount we expect to collect on the loan. Loans with prior charge-offs may have a negative allowance for credit losses established upon reclassification.
The table below presents the amortized cost basis of non-accrual loans as of the beginning and the end of the periods presented, including the interest income recognized for the period that is related to the loans on non-accrual status as of period end.
Table 3.4 - Amortized Cost Basis of Held-for-Investment Loans on Non-Accrual
| | | | | | | | | | | | | | | | | | | | |
| | Non-Accrual Amortized Cost Basis | | Interest Income Recognized(1) |
| (In millions) | | March 31, 2022 | June 30, 2022 | | 2Q 2022 | YTD 2022 |
| Single-Family: | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $13,831 | | $11,021 | | | $40 | | $80 | |
| 15-year or less, amortizing fixed-rate | | 684 | | 562 | | | 1 | | 3 | |
| Adjustable-rate and other | | 580 | | 435 | | | 1 | | 3 | |
| Total Single-Family | | 15,095 | | 12,018 | | | 42 | | 86 | |
| Total Multifamily | | 42 | | 42 | | | — | | — | |
| Total Single-Family and Multifamily | | $15,137 | | $12,060 | | | $42 | | $86 | |
| | | | | | | | | | | | | | | | | | | | |
| | Non-Accrual Amortized Cost Basis | | Interest Income Recognized(1) |
| (In millions) | | March 31, 2021 | June 30, 2021 | | 2Q 2021 | YTD 2021 |
| Single-Family: | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $21,137 | | $19,431 | | | $35 | | $70 | |
| 15-year or less, amortizing fixed-rate | | 1,031 | | 914 | | | 1 | | 3 | |
| Adjustable-rate and other | | 996 | | 879 | | | 1 | | 3 | |
| Total Single-Family | | 23,164 | | 21,224 | | | 37 | | 76 | |
| Total Multifamily | | — | | — | | | — | | — | |
| Total Single-Family and Multifamily | | $23,164 | | $21,224 | | | $37 | | $76 | |
(1)Represents the amount of payments received during the period, including those received while the loans were on accrual status, for the held-for-investment loans on non-accrual status as of period end.
The table below provides the amount of accrued interest receivable, net presented on our condensed consolidated balance sheets and the amount of accrued interest receivable related to loans on non-accrual status at the end of the periods that was charged off.
Table 3.5 - Accrued Interest Receivable, Net and Related Charge-Offs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accrued Interest Receivable, Net | | Accrued Interest Receivable Related Charge-Offs |
| (In millions) | | June 30, 2022 | December 31, 2021 | | 2Q 2022 | 2Q 2021 | | YTD 2022 | YTD 2021 |
| Single-Family loans | | $7,458 | | $7,065 | | | ($58) | | ($119) | | | ($145) | | ($285) | |
| Multifamily loans | | 122 | | 125 | | | — | | — | | | — | | — | |
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 58 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 3 |
Single-Family
The current LTV ratio is one key factor we consider when estimating our allowance for credit losses for single-family loans. As current LTV ratios increase, the borrower's equity in the home decreases, which may negatively affect the borrower's ability to refinance (outside of our relief refinance programs) or to sell the property for an amount at or above the balance of the outstanding loan.
The table below presents the amortized cost basis of single-family held-for-investment loans by current LTV ratio. Our current LTV ratios are estimates based on available data through the end of each period presented. For reporting purposes:
n Alt-A loans continue to be presented in the "adjustable-rate and other" category following modification, even though the borrower may have provided full documentation of assets and income to complete the modification and
n Option ARM loans continue to be presented in the "adjustable-rate and other" category following modification, even though the modified loan no longer provides for optional payment provisions.
Table 3.6 - Amortized Cost Basis of Single-Family Held-for-Investment Loans by Current LTV Ratio and Vintage | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Year of Origination | Total |
| (In millions) | | 2022 | 2021 | 2020 | 2019 | 2018 | Prior |
Current LTV ratio: | | | | | | | | |
20- and 30-year or more, amortizing fixed-rate | | | | | | | | |
| ≤ 60 | | $47,446 | | $426,668 | | $526,497 | | $94,360 | | $42,009 | | $434,009 | | $1,570,989 | |
| > 60 to 80 | | 108,231 | | 432,622 | | 183,489 | | 29,468 | | 8,160 | | 11,300 | | 773,270 | |
> 80 to 90 | | 36,712 | | 88,209 | | 3,088 | | 497 | | 135 | | 548 | | 129,189 | |
| > 90 to 100 | | 29,808 | | 1,700 | | 227 | | 25 | | 14 | | 194 | | 31,968 | |
> 100 | | 14 | | 1 | | — | | 1 | | 4 | | 210 | | 230 | |
Total 20- and 30-year or more, amortizing fixed-rate | | 222,211 | | 949,200 | | 713,301 | | 124,351 | | 50,322 | | 446,261 | | 2,505,646 | |
15-year or less, amortizing fixed-rate | | | | | | | | |
| ≤ 60 | | 13,108 | | 121,324 | | 116,182 | | 15,904 | | 6,189 | | 78,186 | | 350,893 | |
| > 60 to 80 | | 9,712 | | 28,266 | | 3,872 | | 218 | | 26 | | 27 | | 42,121 | |
> 80 to 90 | | 817 | | 654 | | 9 | | — | | 1 | | 3 | | 1,484 | |
| > 90 to 100 | | 252 | | 7 | | — | | — | | — | | 2 | | 261 | |
> 100 | | — | | — | | — | | — | | — | | 2 | | 2 | |
| Total 15-year or less, amortizing fixed-rate | | 23,889 | | 150,251 | | 120,063 | | 16,122 | | 6,216 | | 78,220 | | 394,761 | |
Adjustable-rate and other | | | | | | | | |
| ≤ 60 | | 817 | | 3,052 | | 1,661 | | 711 | | 481 | | 16,911 | | 23,633 | |
| > 60 to 80 | | 1,211 | | 2,002 | | 214 | | 75 | | 31 | | 454 | | 3,987 | |
> 80 to 90 | | 350 | | 168 | | 2 | | 1 | | 1 | | 37 | | 559 | |
| > 90 to 100 | | 206 | | 4 | | — | | — | | — | | 13 | | 223 | |
> 100 | | — | | — | | — | | — | | — | | 9 | | 9 | |
| Total adjustable-rate and other | | 2,584 | | 5,226 | | 1,877 | | 787 | | 513 | | 17,424 | | 28,411 | |
| Total Single-Family loans | | $248,684 | | $1,104,677 | | $835,241 | | $141,260 | | $57,051 | | $541,905 | | $2,928,818 | |
| | | | | | | | |
Total for all loan product types by current LTV ratio: | | | | | | | | |
≤ 60 | | $61,371 | | $551,044 | | $644,340 | | $110,975 | | $48,679 | | $529,106 | | $1,945,515 | |
| > 60 to 80 | | 119,154 | | 462,890 | | 187,575 | | 29,761 | | 8,217 | | 11,781 | | 819,378 | |
> 80 to 90 | | 37,879 | | 89,031 | | 3,099 | | 498 | | 137 | | 588 | | 131,232 | |
| > 90 to 100 | | 30,266 | | 1,711 | | 227 | | 25 | | 14 | | 209 | | 32,452 | |
> 100 | | 14 | | 1 | | — | | 1 | | 4 | | 221 | | 241 | |
| Total Single-Family loans | | $248,684 | | $1,104,677 | | $835,241 | | $141,260 | | $57,051 | | $541,905 | | $2,928,818 | |
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 59 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 3 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Year of Origination | Total |
| (In millions) | | 2021 | 2020 | 2019 | 2018 | 2017 | Prior |
Current LTV ratio: | | | | | | | | |
20- and 30-year or more, amortizing fixed-rate | | | | | | | | |
| ≤ 60 | | $260,244 | | $397,680 | | $77,812 | | $39,143 | | $61,434 | | $405,467 | | $1,241,780 | |
| > 60 to 80 | | 467,193 | | 334,560 | | 60,570 | | 18,914 | | 12,715 | | 17,354 | | 911,306 | |
| > 80 to 90 | | 124,074 | | 28,944 | | 2,034 | | 482 | | 208 | | 818 | | 156,560 | |
> 90 to 100 | | 66,851 | | 1,083 | | 126 | | 45 | | 29 | | 309 | | 68,443 | |
> 100 | | 75 | | 2 | | 4 | | 8 | | 18 | | 328 | | 435 | |
Total 20- and 30-year or more, amortizing fixed-rate | | 918,437 | | 762,269 | | 140,546 | | 58,592 | | 74,404 | | 424,276 | | 2,378,524 | |
15-year or less, amortizing fixed-rate | | | | | | | | |
| ≤ 60 | | 93,732 | | 111,899 | | 17,335 | | 7,161 | | 13,602 | | 78,001 | | 321,730 | |
| > 60 to 80 | | 52,521 | | 18,834 | | 1,136 | | 137 | | 54 | | 36 | | 72,718 | |
| > 80 to 90 | | 3,785 | | 168 | | 6 | | 2 | | 2 | | 3 | | 3,966 | |
> 90 to 100 | | 598 | | 2 | | 1 | | 1 | | 1 | | 2 | | 605 | |
> 100 | | 4 | | — | | — | | 1 | | 1 | | 3 | | 9 | |
| Total 15-year or less, amortizing fixed-rate | | 150,640 | | 130,903 | | 18,478 | | 7,302 | | 13,660 | | 78,045 | | 399,028 | |
Adjustable-rate and other | | | | | | | | |
| ≤ 60 | | 2,054 | | 1,554 | | 727 | | 543 | | 1,657 | | 17,517 | | 24,052 | |
| > 60 to 80 | | 2,435 | | 535 | | 209 | | 90 | | 190 | | 795 | | 4,254 | |
| > 80 to 90 | | 417 | | 16 | | 6 | | 3 | | 4 | | 66 | | 512 | |
> 90 to 100 | | 116 | | — | | — | | — | | — | | 30 | | 146 | |
> 100 | | 1 | | — | | — | | — | | — | | 18 | | 19 | |
| Total adjustable-rate and other | | 5,023 | | 2,105 | | 942 | | 636 | | 1,851 | | 18,426 | | 28,983 | |
| Total Single-Family loans | | $1,074,100 | | $895,277 | | $159,966 | | $66,530 | | $89,915 | | $520,747 | | $2,806,535 | |
| | | | | | | | |
Total for all loan product types by current LTV ratio: | | | | | | | | |
| ≤ 60 | | $356,030 | | $511,133 | | $95,874 | | $46,847 | | $76,693 | | $500,985 | | $1,587,562 | |
| > 60 to 80 | | 522,149 | | 353,929 | | 61,915 | | 19,141 | | 12,959 | | 18,185 | | 988,278 | |
| > 80 to 90 | | 128,276 | | 29,128 | | 2,046 | | 487 | | 214 | | 887 | | 161,038 | |
> 90 to 100 | | 67,565 | | 1,085 | | 127 | | 46 | | 30 | | 341 | | 69,194 | |
> 100 | | 80 | | 2 | | 4 | | 9 | | 19 | | 349 | | 463 | |
| Total Single-Family loans | | $1,074,100 | | $895,277 | | $159,966 | | $66,530 | | $89,915 | | $520,747 | | $2,806,535 | |
Multifamily
The table below presents the amortized cost basis of our multifamily held-for-investment loans, by credit quality indicator, based on available data through the end of each period presented. These indicators involve significant management judgment and are defined as follows:
n "Pass" is current and adequately protected by the borrower's current financial strength and debt service capacity;
n "Special mention" has administrative issues that may affect future repayment prospects but does not have current credit weaknesses. In addition, this category generally includes loans in forbearance;
n "Substandard" has a weakness that jeopardizes the timely full repayment; and
n "Doubtful" has a weakness that makes collection or liquidation in full highly questionable and improbable based on existing conditions.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 60 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 3 |
Table 3.7 - Amortized Cost Basis of Multifamily Held-for-Investment Loans by Credit Quality Indicator and Vintage | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Year of Origination | Total |
| (In millions) | | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | | Revolving Loans |
| Category: | | | | | | | | | | |
Pass | | $4,153 | | $8,006 | | $6,651 | | $5,196 | | $957 | | $3,056 | | | $1,857 | | $29,876 | |
Special mention | | — | | — | | 40 | | 397 | | 7 | | 63 | | | — | | 507 | |
Substandard | | — | | — | | 32 | | 141 | | 4 | | 85 | | | — | | 262 | |
Doubtful | | — | | — | | — | | — | | — | | — | | | — | | — | |
| Total | | $4,153 | | $8,006 | | $6,723 | | $5,734 | | $968 | | $3,204 | | | $1,857 | | $30,645 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Year of Origination | Total |
| (In millions) | | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | | Revolving Loans |
| Category: | | | | | | | | | | |
Pass | | $6,955 | | $7,116 | | $5,273 | | $979 | | $610 | | $2,795 | | | $2,275 | | $26,003 | |
Special mention | | — | | 40 | | 372 | | — | | 3 | | 42 | | | — | | 457 | |
Substandard | | — | | 62 | | 171 | | 4 | | 2 | | 44 | | | — | | 283 | |
Doubtful | | — | | — | | — | | — | | — | | — | | | — | | — | |
| Total | | $6,955 | | $7,218 | | $5,816 | | $983 | | $615 | | $2,881 | | | $2,275 | | $26,743 | |
The table below presents the amortized cost basis of our single-family and multifamily held-for-investment loans, by payment status.
Table 3.8 - Amortized Cost Basis of Held-for-Investment Loans by Payment Status | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| (In millions) | | Current | One Month Past Due | Two Months Past Due | Three Months or More Past Due, or in Foreclosure(1) | Total | Three Months or More Past Due, and Accruing Interest | Non-accrual With No Allowance(2) |
| Single-Family: | | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $2,472,518 | | $15,884 | | $3,318 | | $13,926 | | $2,505,646 | | $3,319 | | $717 | |
| 15-year or less, amortizing fixed-rate | | 392,419 | | 1,373 | | 221 | | 748 | | 394,761 | | 201 | | 14 | |
| Adjustable-rate and other | | 27,539 | | 303 | | 73 | | 496 | | 28,411 | | 35 | | 93 | |
| Total Single-Family | | 2,892,476 | | 17,560 | | 3,612 | | 15,170 | | 2,928,818 | | 3,555 | | 824 | |
| Total Multifamily | | 30,603 | | — | | — | | 42 | | 30,645 | | — | | 42 | |
| Total Single-Family and Multifamily | | $2,923,079 | | $17,560 | | $3,612 | | $15,212 | | $2,959,463 | | $3,555 | | $866 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| (In millions) | | Current | One
Month
Past Due | Two
Months
Past Due | Three Months or
More Past Due,
or in Foreclosure(1) | Total | Three Months or More Past Due, and Accruing Interest | Non-accrual with No Allowance(2) |
| Single-Family: | | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $2,338,076 | | $14,833 | | $3,214 | | $22,401 | | $2,378,524 | | $5,784 | | $857 | |
| 15-year or less, amortizing fixed-rate | | 396,030 | | 1,550 | | 230 | | 1,218 | | 399,028 | | 392 | | 13 | |
| Adjustable-rate and other | | 27,752 | | 280 | | 89 | | 862 | | 28,983 | | 95 | | 102 | |
| Total Single-Family | | 2,761,858 | | 16,663 | | 3,533 | | 24,481 | | 2,806,535 | | 6,271 | | 972 | |
| Total Multifamily | | 26,743 | | — | | — | | — | | 26,743 | | — | | — | |
| Total Single-Family and Multifamily | | $2,788,601 | | $16,663 | | $3,533 | | $24,481 | | $2,833,278 | | $6,271 | | $972 | |
Referenced footnotes are on the next page.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 61 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 3 |
(1)Includes $1.4 billion and $0.7 billion of single-family loans that were in the process of foreclosure as of June 30, 2022 and December 31, 2021, respectively.
(2)Loans with no allowance for loan losses primarily represent those loans that were previously charged off and therefore the collateral value is sufficiently in excess of the amortized cost to result in recovery of the entire amortized cost basis if the property were foreclosed upon or otherwise subject to disposition. We exclude the amounts of allowance for credit losses on accrued interest receivable and advances of pre-foreclosure costs when determining whether a loan has an allowance for credit losses.
In 1Q 2022, we adopted accounting guidance in ASU 2022-02 that eliminates the recognition and measurement of TDRs. Upon adoption of this guidance, we no longer measure an allowance for credit losses for TDRs we reasonably expect will occur, and we evaluate all loan restructurings according to the accounting guidance for loan refinancing and restructuring to determine whether the restructuring should be accounted for as a new loan or a continuation of the existing loan. We derecognize the existing loan and account for the restructured loan as a new loan if the effective yield on the restructured loan is at least equal to the effective yield for comparable loans with similar collection risks and the modifications to the original loan are more than minor. If a loan restructuring does not meet these conditions, we carryforward the existing loan’s amortized cost basis and account for the restructured loan as a continuation of the existing loan. Substantially all of our loan restructurings involving borrowers experiencing financial difficulty are accounted for as a continuation of the existing loan.
The discounted cash flow model we use in measuring our Single-Family allowance for credit losses forecasts cash flows we expect to collect using our historical experience, including the effects of our loss mitigation activities involving borrowers experiencing financial difficulty. When we account for a loan restructuring as a continuation of the existing loan, we update the loan’s effective interest rate based on the restructured terms and recognize interest income prospectively using the new effective rate. We also update the prepayment-adjusted effective interest rate used to discount cash flows in measuring our allowance for credit losses to reflect the loan’s restructured terms. As a result, subsequent to our adoption of the accounting guidance that eliminates the recognition and measurement of TDRs, we no longer recognize an allowance for credit losses for the economic concession granted to a borrower for changes in the timing and amount of contractual cash flows when a loan is restructured. However, because we adopted such guidance prospectively, we continue to use the loan's prepayment-adjusted effective interest rate just prior to the restructuring, with no adjustments made to the effective interest rate for changes in the timing of expected cash flows subsequent to the restructuring, for loans that were restructured and accounted for as TDRs prior to our adoption of the guidance and that have not been subsequently modified after our adoption of the guidance. As a result, we continue to measure an allowance for credit losses for the economic concession granted to a borrower for changes in the timing and amount of contractual cash flows for such loans.
Single-Family Loan Restructurings
We offer several types of restructurings to single-family borrowers that may result in a payment delay, interest rate reduction, term extension, or combination thereof. We do not offer principal forgiveness.
We offer the following types of restructurings to single-family borrowers that result in only a payment delay:
n Forbearance plans - Arrangements that require reduced or no payments during a defined period that provides borrowers additional time to return to compliance with the original mortgage terms or to implement another type of loan workout option. Borrowers may exit forbearance by repaying all past due amounts and fully reinstating the loan, paying off the loan in full, or entering into a repayment plan, a payment deferral plan, or a trial period plan pursuant to a loan modification. We offer forbearance of up to 12 months to single-family borrowers experiencing financial difficulty (and up to 18 months to certain borrowers affected by the COVID-19 pandemic). Borrowers may receive an initial forbearance term of one to six months and, if necessary, one or more forbearance term extensions of one to six months, as long as the delinquency of the mortgage does not exceed 12 months.
n Repayment plans - Contractual plans that allow borrowers a specific period of time to return to current status by paying the normal monthly payment plus additional agreed upon delinquent amounts. Repayment plans must have a term greater than one month and less than or equal to 12 months and the monthly repayment plan payment amount must not exceed 150% of the contractual mortgage payment amount.
n Payment deferral plans - Arrangements that allow borrowers to return to current status by deferring delinquent principal and interest into a non-interest-bearing principal balance that is due at the earlier of the payoff date, maturity date, or sale of the property. The remaining mortgage term, interest rate, payment schedule, and maturity date remain unchanged, and no trial period plan is required. The number of months of payments deferred varies based upon the type of hardship the borrower is experiencing.
In addition, we also offer single-family borrowers loan modifications, which are contractual plans that may involve changing the terms of the loan such as payment delays, interest rate reductions, term extensions, or a combination of these items. Payment delays in our loan modification programs most commonly consist of adding outstanding indebtedness, such as delinquent interest, to the UPB of the loan, and may also include principal forbearance, in which a portion of the principal balance becomes non-interest-bearing and is due at the earlier of the payoff date, maturity date, or sale of the property. Our modification programs generally require completion of a trial period of at least three months prior to receiving the modification.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 62 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 3 |
Most of our modifications involve a combination of: (1) a payment delay in the form of adding outstanding indebtedness to the UPB of the loan, and (2) an interest rate reduction, a term extension, or both.
The table below presents the amortized cost basis of Single-Family held-for-investment loan restructurings involving borrowers experiencing financial difficulty that we entered into during the periods presented.
Table 3.9 - Single-Family Loan Restructurings Involving Borrowers Experiencing Financial Difficulty(1)
| | | | | | | | | | | | | | | | | | | | | |
| | 2Q 2022 |
| (Dollars in millions) | | Payment Delay(2) | | Payment Delay and Term Extension(3) | Payment Delay, Term Extension, and Interest Rate Reduction(3) | Total | Total as % of Class of Financing Receivable(4) |
| Single-Family: | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $6,832 | | | $520 | | $2,476 | | $9,828 | | 0.4 | % |
| 15-year or less, amortizing fixed-rate | | 429 | | | 15 | | 16 | | 460 | | 0.1 | |
| Adjustable-rate and other | | 139 | | | 14 | | 50 | | 203 | | 0.7 | |
| Total Single-Family loan restructurings | | $7,400 | | | $549 | | $2,542 | | $10,491 | | 0.4 | |
| | | | | | | | | | | | | | | | | | | | | |
| | YTD 2022 |
| (Dollars in millions) | | Payment Delay(2) | | Payment Delay and Term Extension(3) | Payment Delay, Term Extension, and Interest Rate Reduction(3) | Total | Total as % of Class of Financing Receivable(4) |
| Single-Family: | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $14,268 | | | $1,172 | | $5,361 | | $20,801 | | 0.8 | % |
| 15-year or less, amortizing fixed-rate | | 910 | | | 28 | | 69 | | 1,007 | | 0.3 | |
| Adjustable-rate and other | | 314 | | | 29 | | 126 | | 469 | | 1.6 | |
| Total Single-Family loan restructurings | | $15,492 | | | $1,229 | | $5,556 | | $22,277 | | 0.8 | |
(1) Type of loan restructurings reflects the cumulative effects of the loan restructurings received during the period.
(2) Includes $3.6 billion and $8.4 billion related to payment deferral plans for 2Q 2022 and YTD 2022, respectively. Also includes forbearance plans, repayment plans, and loan modifications that only involve payment delays.
(3) Includes loan modifications in the period in which the borrower completes the trial period and the loan is permanently modified. The amortized cost basis of loans in trial period modification plans was $2.6 billion as of June 30, 2022.
(4) Based on the amortized cost basis as of period end, divided by the total period-end amortized cost basis of the corresponding financing receivable class of Single-Family held-for-investment loans.
The table below shows the financial effect of Single-Family held-for-investment loan restructurings involving borrowers experiencing financial difficulty that we entered into during the periods presented.
Table 3.10 – Financial Effects of Single-Family Loan Restructurings Involving Borrowers Experiencing Financial Difficulty(1)
| | | | | | | | | | | | | | |
| | 2Q 2022 |
| (Dollars in thousands) | | Weighted-Average Interest Rate Reduction | Weighted-Average Months of Term Extension | Weighted-Average Payment Deferral or Principal Forbearance(2) |
| Single-Family: | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | 1.4 | % | 185 | $21 | |
| 15-year or less, amortizing fixed-rate | | 0.6 | | 359 | 22 | |
| Adjustable-rate and other | | 2.2 | | 234 | 26 | |
Referenced footnotes are included after the year-to-date table.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 63 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 3 |
| | | | | | | | | | | | | | |
| | YTD 2022 |
| (Dollars in thousands) | | Weighted-Average Interest Rate Reduction | Weighted-Average Months of Term Extension | Weighted-Average Payment Deferral or Principal Forbearance(2) |
| Single-Family: | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | 1.5 | % | 187 | $23 | |
| 15-year or less, amortizing fixed-rate | | 0.6 | | 358 | 24 | |
| Adjustable-rate and other | | 2.3 | | 228 | 27 | |
(1) Averages are based on payment deferral plans and loan modifications completed during the periods presented. The financial effects of forbearance plans and repayment plans consist of a payment delay of between one and twelve months. In addition, the financial effect of a forbearance plan is included at the time the forbearance plan is completed if the borrower exits forbearance by entering into a payment deferral plan or loan modification.
(2) Primarily related to payment deferral plans. Amounts are based on non-interest-bearing principal balances on the restructured loans.
The following table provides the amortized cost basis of single-family held-for-investment loans restructured during YTD 2022 involving borrowers experiencing financial difficulty that subsequently defaulted (i.e., loans that became two months delinquent) during the periods presented.
Table 3.11 - Subsequent Defaults of Single-Family Restructured Loans Involving Borrowers Experiencing Financial Difficulty(1)
| | | | | | | | | | | | | | | | | | |
| | 2Q 2022 |
| (In millions) | | Payment Delay | | Payment Delay and Term Extension | Payment Delay, Term Extension, and Interest Rate Reduction | Total |
| Single-Family: | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $364 | | | $30 | | $69 | | $463 | |
| 15-year or less, amortizing fixed-rate | | 18 | | | — | | — | | 18 | |
| Adjustable-rate and other | | 10 | | | 2 | | 1 | | 13 | |
| Total Single-Family | | $392 | | | $32 | | $70 | | $494 | |
| | | | | | | | | | | | | | | | | | |
| | YTD 2022 |
| (In millions) | | Payment Delay | | Payment Delay and Term Extension | Payment Delay, Term Extension, and Interest Rate Reduction | Total |
| Single-Family: | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $717 | | | $38 | | $76 | | $831 | |
| 15-year or less, amortizing fixed-rate | | 45 | | | — | | — | | 45 | |
| Adjustable-rate and other | | 24 | | | 2 | | 1 | | 27 | |
| Total Single-Family | | $786 | | | $40 | | $77 | | $903 | |
(1) Excludes forbearance plans and repayment plans as borrowers are typically past due based on the loan's original contractual terms at the time the borrowers enter into these plans.
The table below presents the amortized cost basis of single-family held-for-investment loans restructured during YTD 2022 by payment status. While a single-family loan is in a forbearance plan or repayment plan, payments continue to be due based on the loan’s original contractual terms because the loan has not been permanently modified. As a result, we report single-family loans in forbearance plans and repayment plans as delinquent to the extent that payments are past due based on the loan’s original contractual terms. Loans that have been restructured by entering into a payment deferral plan or loan modification are reported as delinquent to the extent that payments are past due based on the loan's restructured terms.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 64 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 3 |
Table 3.12 - Payment Status of Single-Family Restructured Loans Involving Borrowers Experiencing Financial Difficulty
| | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| (In millions) | | Current | One Month Past Due | Two Months Past Due | Three Months or More Past Due | Total |
| Single-Family: | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | $13,524 | | $1,905 | | $1,224 | | $4,148 | | $20,801 | |
| 15-year or less, amortizing fixed-rate | | 610 | | 97 | | 72 | | 228 | | 1,007 | |
| Adjustable-rate and other | | 292 | | 31 | | 21 | | 125 | | 469 | |
| Total Single-Family | | $14,426 | | $2,033 | | $1,317 | | $4,501 | | $22,277 | |
Multifamily Loan Restructurings
We offer several types of restructurings to multifamily borrowers that may result in a payment delay, interest rate reduction, term extension, principal forgiveness, or combination thereof. In certain cases, we offer multifamily borrowers forbearance plans that allow borrowers to defer monthly payments during a defined period. After the forbearance period ends, the borrowers are required to repay forborne loan amounts in monthly installments. In addition, in certain cases, for maturing loans we may provide term extensions with no changes to the effective borrowing rate. In other cases, we may make more significant modifications of terms for borrowers experiencing financial difficulty, such as interest rate reductions, term extensions, principal forbearance and/or forgiveness, or some combination of these items. There were no restructuring activities related to Multifamily held-for-investment loans involving borrowers experiencing financial difficulty for the six months ended June 30, 2022.
Prior Period Troubled Debt Restructuring Information The table below provides details of our single-family loan modifications that were classified as TDRs during the periods presented.
Table 3.13 - Single-Family TDR Modification Metrics | | | | | | | | | | | | | | | | |
| | | 2Q 2021 | | | YTD 2021 |
| Percentage of single-family loan modifications that were classified as TDRs with: | | | | | | |
| Interest rate reductions and related term extensions | | | 13 | % | | | 14 | % |
| Principal forbearance and related interest rate reductions and term extensions | | | 37 | | | | 35 | |
| Average coupon interest rate reduction | | | 0.4 | % | | | 0.4 | % |
| Average months of term extension | | | 145 | | | 149 |
The table below presents the volume of single-family and multifamily loans that were newly classified as TDRs during the periods presented. Loans classified as a TDR in one period may be subject to further action (such as a modification or remodification) in a subsequent period. In such cases, the subsequent action would not be reflected in the table below since the loan would already have been classified as a TDR.
Table 3.14 - TDR Activity
| | | | | | | | | | | | | | | | | | | | | | |
| | 2Q 2021 | | | YTD 2021 |
| (Dollars in millions) | | Number of Loans | Post-TDR Amortized Cost Basis | | | | Number of Loans | Post-TDR
Amortized Cost Basis |
Single-Family:(1)(2) | | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | 3,729 | $656 | | | | | 7,511 | | $1,327 | |
| 15-year or less, amortizing fixed-rate | | 425 | 47 | | | | | 897 | | 94 | |
| Adjustable-rate and other | | 208 | 30 | | | | | 407 | | 58 | |
| Total Single-Family | | 4,362 | 733 | | | | | 8,815 | | 1,479 | |
| Multifamily | | — | | — | | | | | — | | — | |
(1)The pre-TDR amortized cost basis for single-family loans initially classified as TDRs during 2Q 2021 and YTD 2021 was $0.8 billion and $1.5 billion, respectively.
(2)Includes certain bankruptcy events and forbearance plans, repayment plans, payment deferral plans, and modification activities that do not qualify for the temporary relief related to TDRs provided by the CARES Act based on servicer reporting at the time of the TDR event.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 65 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 3 |
The table below presents the volume of our TDR modifications that experienced payment defaults (i.e., loans that became two months delinquent or completed a loss event) during the periods presented and had completed a modification during the year preceding the payment default.
Table 3.15 - Payment Defaults of Completed TDR Modifications | | | | | | | | | | | | | | | | | | | | | | |
| | 2Q 2021 | | | YTD 2021 |
| (Dollars in millions) | | Number of Loans | Post-TDR Amortized Cost Basis | | | | Number of Loans | Post-TDR Amortized Cost Basis |
| Single-Family: | | | | | | | | |
| 20- and 30-year or more, amortizing fixed-rate | | 682 | | $124 | | | | | 1,813 | | $322 | |
| 15-year or less, amortizing fixed-rate | | 24 | | 2 | | | | | 86 | | 9 | |
| Adjustable-rate and other | | 95 | | 14 | | | | | 237 | | 38 | |
| Total Single-Family | | 801 | | 140 | | | | | 2,136 | | 369 | |
| Multifamily | | — | | — | | | | | — | | — | |
Non-Cash Investing and Financing Activities During YTD 2022 and YTD 2021, we acquired $247.8 billion and $295.5 billion, respectively, of loans held-for-investment in exchange for the issuance of debt of consolidated trusts in guarantor swap transactions. We received approximately $105.8 billion and $112.1 billion of loans held-for-investment from sellers during YTD 2022 and YTD 2021, respectively, to satisfy advances to lenders that were recorded in other assets on our condensed consolidated balance sheets.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 66 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 4 |
NOTE 4
Guarantees and Other Off-Balance Sheet Credit Exposures
The table below shows our maximum exposure, recognized liability, and maximum remaining term of our guarantees to nonconsolidated VIEs and other third parties. This table does not include certain of our unrecognized guarantees, such as guarantees to consolidated VIEs or to resecuritization trusts that do not expose us to incremental credit risk. The maximum exposure disclosed in the table is not representative of the actual loss we are likely to incur, based on our historical loss experience and after consideration of proceeds from collateral liquidation, including possible credit enhancement recoveries.
Table 4.1 - Financial Guarantees | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
(Dollars in millions, terms in years) | | Maximum
Exposure(1) | Recognized
Liability(2) | Maximum
Remaining
Term | | Maximum
Exposure(1) | Recognized
Liability(2) | Maximum
Remaining
Term |
| Single-Family: | | | | | | | | |
Securitization activity guarantees | | $26,883 | | $396 | | 40 | | $27,975 | | $398 | | 39 |
Other mortgage-related guarantees | | 9,961 | | 226 | | 30 | | 10,588 | | 251 | | 30 |
| Guarantees of Fannie Mae securities | | 126,927 | | — | | 39 | | 111,150 | | — | | 40 |
| Total Single-Family | | $163,771 | | $622 | | | | $149,713 | | $649 | | |
| Multifamily: | | | | | | | | |
| Securitization activity guarantees | | $320,025 | | $4,828 | | 38 | | $317,006 | | $4,663 | | 38 |
| Other mortgage-related guarantees | | 10,140 | | 371 | | 32 | | 10,456 | | 404 | | 32 |
| Total Multifamily | | $330,165 | | $5,199 | | | | $327,462 | | $5,067 | | |
Other guarantees: | | | | | | | | |
| Written options | | $27,724 | | $1,591 | | 9 | | $34,861 | | $1,596 | | 10 |
| CRT-related derivatives | | 37,755 | | 58 | | 30 | | 33,188 | | 35 | | 30 |
| Other | | 5,881 | | 330 | | 30 | | 1,750 | | 21 | | 29 |
| Total other guarantees | | $71,360 | | $1,979 | | | | $69,799 | | $1,652 | | |
(1)The maximum exposure represents the contractual amounts that could be lost if counterparties or borrowers defaulted, without consideration of proceeds from collateral liquidation, including possible credit enhancement recoveries. For other guarantees, this amount primarily represents the notional amount or UPB of our interest rate and market value guarantees and guarantees of third-party derivatives. For certain of our other guarantees, our exposure may be unlimited; however, we generally reduce our exposure through separate derivative contracts with third parties.
(2)For securitization activity guarantees and other mortgage-related guarantees, this amount represents the guarantee obligation on our condensed consolidated balance sheets and excludes our allowance for credit losses on off-balance sheet credit exposures. For other guarantees, this amount represents the fair value of the contract.
The table below shows the payment status of the mortgage loans underlying our guarantees that are not measured at fair value.
Table 4.2 – UPB of Loans Underlying Our Guarantees by Payment Status | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| (In millions) | | Current | One Month Past Due | Two Months Past Due | Three Months or More Past Due, or in Foreclosure | Total(1) |
| Single-Family | | $37,686 | | $1,975 | | $701 | | $2,043 | | $42,405 | |
| Multifamily | | 372,726 | | 14 | | 5 | | 218 | | 372,963 | |
| Total | | $410,412 | | $1,989 | | $706 | | $2,261 | | $415,368 | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| (In millions) | | Current | One Month Past Due | Two Months Past Due | Three Months or More Past Due, or in Foreclosure | Total(1) |
| Single-Family | | $38,964 | | $2,040 | | $692 | | $2,341 | | $44,037 | |
| Multifamily | | 370,541 | | 47 | | 7 | | 317 | | 370,912 | |
| Total | | $409,505 | | $2,087 | | $699 | | $2,658 | | $414,949 | |
(1)Loan-level payment status is not available for certain guarantees totaling $0.3 billion and $0.4 billion as of June 30, 2022 and December 31, 2021, respectively, and therefore is not included in the table above.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 67 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 5 |
NOTE 5
Allowance for Credit Losses
In 1Q 2022, we adopted accounting guidance that eliminates the recognition and measurement of TDRs. Upon adoption of this guidance, we no longer incorporate the expected credit losses for TDRs we reasonably expect will occur in our estimation of the allowance for credit losses. See Note 3 for more information on the adoption of the new accounting guidance.
The table below summarizes changes in our allowance for credit losses.
Table 5.1 - Details of the Allowance for Credit Losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2Q 2022 | 2Q 2021 | | YTD 2022 | YTD 2021 |
| (In millions) | | Single-Family | Multi-family | Total | Single-Family | Multi-family | Total | | Single-Family | Multi-family | Total | Single-Family | Multi-family | Total |
| Beginning balance | | $4,849 | | $72 | | $4,921 | | $6,130 | | $150 | | $6,280 | | | $5,440 | | $78 | | $5,518 | | $6,353 | | $200 | | $6,553 | |
| Provision (benefit) for credit losses | | 298 | | 9 | | 307 | | (686) | | (54) | | (740) | | | (533) | | 3 | | (530) | | (832) | | (104) | | (936) | |
| Charge-offs | | (107) | | — | | (107) | | (203) | | — | | (203) | | | (280) | | — | | (280) | | (441) | | — | | (441) | |
| Recoveries collected | | 43 | | — | | 43 | | 61 | | — | | 61 | | | 95 | | — | | 95 | | 107 | | — | | 107 | |
Other(1) | | 259 | | — | | 259 | | 211 | | — | | 211 | | | 620 | | — | | 620 | | 326 | | — | | 326 | |
| Ending balance | | $5,342 | | $81 | | $5,423 | | $5,513 | | $96 | | $5,609 | | | $5,342 | | $81 | | $5,423 | | $5,513 | | $96 | | $5,609 | |
| | | | | | | | | | | | | | |
| Components of the ending balance of the allowance for credit losses: | | | | | | | |
| Mortgage loans held-for-investment | | $4,904 | | $35 | | $4,939 | | $4,601 | | $47 | | $4,648 | | | | | | | | |
| Advances of pre-foreclosure costs | | 380 | | — | | 380 | | 691 | | — | | 691 | | | | | | | | |
| Accrued interest receivable on mortgage loans | | 6 | | — | | 6 | | 168 | | — | | 168 | | | | | | | | |
| Off-balance sheet credit exposures | | 52 | | 46 | | 98 | | 53 | | 49 | | 102 | | | | | | | | |
| Total ending balance | | $5,342 | | $81 | | $5,423 | | $5,513 | | $96 | | $5,609 | | | | | | | | |
(1)Primarily includes capitalization of past due interest related to non-accrual loans that receive payment deferral plans and loan modifications.
n 2Q 2022 vs. 2Q 2021 - A provision for credit losses in 2Q 2022, primarily driven by portfolio growth and deterioration in forecasted economic conditions, compared to a benefit for credit losses in 2Q 2021, which was primarily driven by a reserve release due to observed house price appreciation and improving economic conditions.
n YTD 2022 vs. YTD 2021 - Benefit for credit losses decreased primarily due to portfolio growth and deterioration in forecasted economic conditions.
In addition, charge-offs decreased year-over-year due to a decrease in charge-offs of accrued interest receivable during the 2022 periods.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 68 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 6 |
NOTE 6
Investment Securities
The table below summarizes the fair values of our investments in debt securities by classification.
Table 6.1 - Investment Securities | | | | | | | | | | | |
| (In millions) | | June 30, 2022 | December 31, 2021 |
| Trading securities | | $43,816 | | $49,003 | |
| Available-for-sale securities | | 5,121 | | 4,012 | |
| Total fair value of investment securities | | $48,937 | | $53,015 | |
The table below presents the fair values of our trading securities by major security type. Our non-mortgage-related securities primarily consist of investments in U.S. Treasury securities.
Table 6.2 - Trading Securities | | | | | | | | | | | |
| (In millions) | | June 30, 2022 | December 31, 2021 |
| Mortgage-related securities | | $12,456 | | $16,231 | |
| Non-mortgage-related securities | | 31,360 | | 32,772 | |
| Total fair value of trading securities | | $43,816 | | $49,003 | |
For trading securities held at June 30, 2022, we recorded net unrealized losses of $0.3 billion and $1.1 billion during 2Q 2022 and YTD 2022, respectively. For trading securities held at June 30, 2021, we recorded net unrealized losses of $0.4 billion and $0.8 billion during 2Q 2021 and YTD 2021, respectively.
Available-for-Sale Securities The table below provides details of the securities classified as available-for-sale on our condensed consolidated balance sheets.
Table 6.3 - Available-for-Sale Securities | | | | | | | | | | | | | | | | | | | | |
| | Amortized
Cost
Basis | Gross Unrealized Gains in Other Comprehensive Income | Gross Unrealized
Losses in Other Comprehensive Income | Fair Value | Accrued Interest Receivable |
| (In millions) | |
June 30, 2022 | | $4,990 | | $253 | | ($122) | | $5,121 | | $12 | |
December 31, 2021 | | 3,638 | | 376 | | (2) | | 4,012 | | 10 | |
The fair value of our available-for-sale securities held at June 30, 2022 scheduled to contractually mature after ten years was $1.7 billion, with $2.7 billion scheduled to contractually mature after five years through ten years.
The table below summarizes the gross realized gains and gross realized losses from the sale of available-for-sale securities.
Table 6.4 - Gross Realized Gains and Gross Realized Losses from Sales of Available-for-Sale Securities | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2Q 2022 | 2Q 2021 | | YTD 2022 | YTD 2021 |
| Gross realized gains | | $1 | | $121 | | | $1 | | $520 | |
| Gross realized losses | | (3) | | (22) | | | (4) | | (53) | |
| Net realized gains (losses) | | ($2) | | $99 | | | ($3) | | $467 | |
Non-Cash Investing and Financing Activities During YTD 2022 and YTD 2021, we recognized $8.3 billion and $23.9 billion, respectively, of investment securities in exchange for the issuance of debt of consolidated trusts through partial sales of commingled single-class resecuritization products that were previously consolidated.
During YTD 2022, we deconsolidated $7.7 billion of mortgage-related securities and debt of consolidated trusts where we were no longer deemed the primary beneficiary.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 69 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 7 |
NOTE 7
Debt
The table below summarizes the balances of total debt on our condensed consolidated balance sheets.
Table 7.1 - Total Debt | | | | | | | | | | | |
(In millions) | | June 30, 2022 | December 31, 2021 |
| Debt of consolidated trusts | | $2,934,115 | | $2,803,054 | |
| Debt of Freddie Mac: | | | |
Short-term debt | | 3,112 | | — | |
Long-term debt | | 155,951 | | 177,131 | |
| Total debt of Freddie Mac | | 159,063 | | 177,131 | |
Total debt | | $3,093,178 | | $2,980,185 | |
As of June 30, 2022, our aggregate indebtedness pursuant to the Purchase Agreement was $168.6 billion, which was below the current $300.0 billion debt cap limit. Our aggregate indebtedness calculation primarily includes the par value of short- and long-term debt.
Debt of Consolidated Trusts The table below summarizes the debt of consolidated trusts based on underlying loan product type.
Table 7.2 - Debt of Consolidated Trusts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| (Dollars in millions) | | Contractual Maturity | UPB | Carrying Amount(1) | Weighted Average Coupon(2) | | Contractual Maturity | UPB | Carrying Amount(1) | Weighted Average Coupon(2) |
Single-Family(3): | | | | | | | | | | |
20- and 30-year or more, fixed-rate | | 2022 - 2061 | $2,440,644 | | $2,488,823 | | 2.63 | % | | 2022 - 2061 | $2,297,650 | | $2,358,397 | | 2.62 | % |
15-year or less, fixed-rate | | 2022 - 2037 | 387,599 | | 395,094 | | 2.11 | | | 2022 - 2037 | 390,320 | | 399,647 | | 2.13 | |
| Adjustable-rate and other | | 2022 - 2052 | 23,583 | | 24,281 | | 2.41 | | | 2022 - 2052 | 24,248 | | 24,921 | | 2.31 | |
| Total Single-Family | | | 2,851,826 | | 2,908,198 | | | | | 2,712,218 | | 2,782,965 | | |
| Multifamily | | 2022 - 2052 | 25,896 | | 25,917 | | 2.35 | | | 2022 - 2051 | 19,838 | | 20,089 | | 2.17 | |
| Total debt of consolidated trusts | | | $2,877,722 | | $2,934,115 | | | | | $2,732,056 | | $2,803,054 | | |
(1)Includes $2.3 billion and $1.1 billion as of June 30, 2022 and December 31, 2021, respectively, of debt of consolidated trusts that represents the fair value of debt for which the fair value option was elected.
(2)The effective interest rate for debt of consolidated trusts was 2.08% and 1.71% as of June 30, 2022 and December 31, 2021, respectively.
(3)Prior period was revised to conform to the current period presentation.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 70 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 7 |
The table below summarizes the balances and effective interest rates for debt of Freddie Mac.
Table 7.3 - Total Debt of Freddie Mac | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| (Dollars in millions) | | Par Value | Carrying Amount(1) | Weighted Average Effective Rate(2) | | Par Value | Carrying Amount(1) | Weighted Average Effective Rate(2) |
| Short-term debt: | | | | | | | | |
| Discount notes and Reference Bills | | $1,575 | | $1,572 | | 1.20 | % | | $— | | $— | | — | % |
| Medium-term notes | | 1,540 | | 1,540 | | 1.07 | | | — | | — | | — | |
| Securities sold under agreements to repurchase | | 9,977 | | 9,977 | | 1.06 | | | 7,333 | | 7,333 | | (0.10) | |
Offsetting arrangements(3) | | (9,977) | | (9,977) | | | | (7,333) | | (7,333) | | |
| Total short-term debt | | 3,115 | | 3,112 | | 1.14 | | | — | | — | | — | |
| Long-term debt: | | | | | | | | |
| Original maturities on or before December 31, | | | | | | | | |
| 2022 | | 18,369 | | 18,379 | | 0.46 | | | 48,625 | | 48,641 | | 0.18 | |
| 2023 | | 40,822 | | 40,792 | | 0.58 | | | 38,688 | | 38,644 | | 0.47 | |
| 2024 | | 20,783 | | 20,766 | | 1.47 | | | 13,274 | | 13,257 | | 0.46 | |
| 2025 | | 40,911 | | 40,616 | | 1.15 | | | 35,436 | | 35,108 | | 0.84 | |
| 2026 | | 4,984 | | 4,982 | | 0.97 | | | 4,717 | | 4,715 | | 0.83 | |
| Thereafter | | 33,232 | | 31,661 | | 2.95 | | | 31,736 | | 30,052 | | 2.91 | |
STACR and SCR debt(4) | | 6,332 | | 6,195 | | 5.57 | | | 9,139 | | 8,981 | | 4.23 | |
| Hedging-related basis adjustments | | N/A | (7,440) | | | | N/A | (2,267) | | |
| Total long-term debt | | 165,433 | | 155,951 | | 1.49 | | | 181,615 | | 177,131 | | 1.07 | |
Total debt of Freddie Mac(5) | | $168,548 | | $159,063 | | | | $181,615 | | $177,131 | | |
(1)Represents par value, net of associated discounts or premiums and issuance cost. Includes $1.3 billion and $1.4 billion at June 30, 2022 and December 31, 2021, respectively, of long-term debt that represents the fair value of debt for which the fair value option was elected.
(2)Based on carrying amount.
(3)We offset payables related to securities sold under agreements to repurchase against receivables related to securities purchased under agreements to resell on our condensed consolidated balance sheets, when such amounts meet the conditions for offsetting in the accounting guidance.
(4)Contractual maturities of these debt securities are not presented because they are subject to prepayment risk, as their payments are based upon the performance of a reference pool of mortgage assets that may be prepaid by the related mortgage borrower at any time, generally without penalty.
(5)Carrying amount for debt of Freddie Mac includes callable debt of $85.5 billion and $68.5 billion at June 30, 2022 and December 31, 2021, respectively.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 71 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 8 |
NOTE 8
Derivatives
We use derivatives primarily to hedge interest-rate sensitivity mismatches between our financial assets and liabilities. We analyze the interest-rate sensitivity of financial assets and liabilities across a variety of interest-rate scenarios based on market prices, models, and economics. When we use derivatives to mitigate our exposures, we consider a number of factors, including cost, exposure to counterparty risk, and our overall risk management strategy.
We apply fair value hedge accounting to certain single-family mortgage loans and certain issuances of debt where we hedge the changes in fair value of these items attributable to the designated benchmark interest rate, using interest-rate swaps.
Derivative Assets and Liabilities at Fair Value The table below presents the notional value and fair value of derivatives reported on our condensed consolidated balance sheets.
Table 8.1 - Derivative Assets and Liabilities at Fair Value
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| | | Notional or Contractual Amount | Derivatives at Fair Value | | Notional or Contractual Amount | Derivatives at Fair Value |
| (In millions) | | Assets | Liabilities | | Assets | Liabilities |
| Not designated as hedges | | | | | | | | |
| Interest-rate risk management derivatives: | | | | | | | | |
| Swaps | | $539,173 | | $1,199 | | ($900) | | | $561,393 | | $1,748 | | ($3,319) | |
| Written options | | 27,724 | | — | | (1,591) | | | 34,861 | | — | | (1,597) | |
Purchased options(1) | | 105,270 | | 4,081 | | — | | | 137,873 | | 3,585 | | — | |
| Futures | | 111,420 | | — | | — | | | 126,528 | | — | | — | |
| Total interest-rate management derivatives | | 783,587 | | 5,280 | | (2,491) | | | 860,655 | | 5,333 | | (4,916) | |
| Mortgage commitment derivatives: | | | | | | | | |
| Forward contracts to purchase mortgage loans | | 4,148 | | 27 | | (4) | | | 7,582 | | 15 | | (5) | |
| Forward contracts to purchase mortgage-related securities | | 19,239 | | 115 | | (70) | | | 16,605 | | 26 | | (8) | |
| Forward contracts to sell mortgage-related securities | | 34,299 | | 99 | | (207) | | | 59,469 | | 38 | | (73) | |
| Total mortgage commitment derivatives | | 57,686 | | 241 | | (281) | | | 83,656 | | 79 | | (86) | |
| CRT-related derivatives | | 37,892 | | 102 | | (60) | | | 33,351 | | 15 | | (37) | |
| Other | | 8,553 | | 2 | | (330) | | | 4,335 | | 2 | | (21) | |
| Total derivatives not designated as hedges | | 887,718 | | 5,625 | | (3,162) | | | 981,997 | | 5,429 | | (5,060) | |
| Designated as fair value hedges | | | | | | | | |
| Interest-rate risk management derivatives: | | | | | | | | |
| Swaps | | 159,549 | | 144 | | (5,873) | | | 154,819 | | 37 | | (2,689) | |
| Total derivatives designated as fair value hedges | | 159,549 | | 144 | | (5,873) | | | 154,819 | | 37 | | (2,689) | |
Derivative interest receivable (payable)(2) | | | 429 | | (727) | | | | 360 | | (413) | |
Netting adjustments(3) | | | (5,574) | | 8,699 | | | | (5,366) | | 7,880 | |
| Total derivative portfolio, net | | $1,047,267 | | $624 | | ($1,063) | | | $1,136,816 | | $460 | | ($282) | |
(1)Includes swaptions on credit indices with a notional or contractual amount of $8.4 billion and $9.4 billion at June 30, 2022 and December 31, 2021, respectively, and a fair value of $5.0 million and $1.0 million at June 30, 2022 and December 31, 2021, respectively.
(2)Includes other derivative receivables and payables.
(3)Represents counterparty netting and cash collateral netting.
See Note 9 for information related to our derivative counterparties and collateral held and posted.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 72 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 8 |
Gains and Losses on Derivatives The table below presents the gains and losses on derivatives, including the accrual of periodic cash settlements, while not designated in qualifying hedge relationships and reported on our condensed consolidated statements of operations and comprehensive income (loss) as investment gains (losses), net.
Table 8.2 - Gains and Losses on Derivatives | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2Q 2022 | 2Q 2021 | | YTD 2022 | YTD 2021 |
| Not designated as hedges | | | | | | |
| Interest-rate risk management derivatives: | | | | | | |
| Swaps | | $126 | | $1,039 | | | $754 | | $1,654 | |
| Written options | | (320) | | 305 | | | (684) | | (156) | |
| Purchased options | | 453 | | (586) | | | 1,106 | | (634) | |
| Futures | | 556 | | (127) | | | 1,424 | | 159 | |
| Total interest-rate risk management derivatives fair value gains (losses) | | 815 | | 631 | | | 2,600 | | 1,023 | |
| Mortgage commitment derivatives | | 880 | | (860) | | | 2,719 | | 616 | |
| CRT-related derivatives | | 49 | | 15 | | | 33 | | (27) | |
| Other | | (24) | | 11 | | | (35) | | 8 | |
| Total derivatives not designated as hedges fair value gains (losses) | | 1,720 | | (203) | | | 5,317 | | 1,620 | |
Accrual of periodic cash settlements on swaps(1) | | (212) | | (360) | | | (386) | | (812) | |
| Total | | $1,508 | | ($563) | | | $4,931 | | $808 | |
(1)Includes interest on variation margin on cleared interest-rate swaps.
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 73 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 8 |
The table below presents the effects of fair value hedge accounting by condensed consolidated statements of operations and comprehensive income (loss) line item, including the gains and losses on derivatives and hedged items designated in qualifying hedge relationships and other components due to the application of hedge accounting.
Table 8.3 - Gains and Losses on Fair Value Hedges | | | | | | | | | | | | | | | | | |
| | 2Q 2022 | 2Q 2021 |
| (In millions) | | Interest Income | Interest Expense | Interest Income | Interest Expense |
| Total amounts of income and expense line items presented in our condensed consolidated statements of operations and comprehensive income in which the effects of fair value hedges are recorded: | | $20,008 | | ($15,249) | | $15,230 | | ($10,463) | |
| | | | | |
| Interest contracts on mortgage loans held-for-investment: | | | | | |
| Gain (loss) on fair value hedging relationships: | | | | | |
| Hedged items | | (1,523) | | — | | 1,086 | | — | |
| Derivatives designated as hedging instruments | | 1,408 | | — | | (1,097) | | — | |
| Interest accruals on hedging instruments | | (149) | | — | | (139) | | — | |
| Discontinued hedge-related basis adjustments amortization | | (4) | | — | | (511) | | — | |
| Interest contracts on debt: | | | | | |
| Gain (loss) on fair value hedging relationships: | | | | | |
| Hedged items | | — | | 1,300 | | — | | (600) | |
| Derivatives designated as hedging instruments | | — | | (1,328) | | — | | 568 | |
| Interest accruals on hedging instruments | | — | | (44) | | — | | 248 | |
| Discontinued hedge-related basis adjustments amortization | | — | | 2 | | — | | 3 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | YTD 2022 | YTD 2021 |
| (In millions) | | Interest Income | Interest Expense | Interest Income | Interest Expense |
| Total amounts of income and expense line items presented in our condensed consolidated statements of operations and comprehensive income in which the effects of fair value hedges are recorded: | | $37,748 | | ($28,885) | | $29,132 | | ($20,726) | |
| | | | | |
| Interest contracts on mortgage loans held-for-investment: | | | | | |
| Gain (loss) on fair value hedging relationships: | | | | | |
| Hedged items | | (4,150) | | — | | (437) | | — | |
| Derivatives designated as hedging instruments | | 3,463 | | — | | 437 | | — | |
| Interest accruals on hedging instruments | | (416) | | — | | (253) | | — | |
| Discontinued hedge-related basis adjustments amortization | | (128) | | — | | (1,292) | | — | |
| Interest contracts on debt: | | | | | |
| Gain (loss) on fair value hedging relationships: | | | | | |
| Hedged items | | — | | 5,161 | | — | | 1,514 | |
| Derivatives designated as hedging instruments | | — | | (5,224) | | — | | (1,620) | |
| Interest accruals on hedging instruments | | — | | 100 | | — | | 503 | |
| Discontinued hedge-related basis adjustments amortization | | — | | 12 | | — | | 8 | |
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 74 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 8 |
The table below presents the cumulative basis adjustments and the carrying amounts of the hedged item by its respective balance sheet line item.
Table 8.4 - Cumulative Basis Adjustments Due to Fair Value Hedging
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Carrying Amount Assets / (Liabilities) | | Cumulative Amount of Fair Value Hedging Basis Adjustments Included in the Carrying Amount | | Closed Portfolio Under the Last-of-Layer Method |
| (In millions) | | | Total | Under the Last-of-Layer Method | Discontinued - Hedge Related | | Total Amount by Amortized Cost Basis | Designated Amount by UPB |
| Mortgage loans held-for-investment | | $1,027,104 | | | ($1,504) | | ($290) | | ($1,214) | | | $85,498 | | $11,516 | |
| Mortgage loans held-for-sale | | 39 | | | 1 | | — | | 1 | | | — | | — | |
| Debt | | (128,332) | | | 7,440 | | — | | (13) | | | — | | — | |
| | | | | | | | | |
| | December 31, 2021 |
| | Carrying Amount Assets / (Liabilities) | | Cumulative Amount of Fair Value Hedging Basis Adjustments Included in the Carrying Amount | | Closed Portfolio Under the Last-of-Layer Method |
| (In millions) | | | Total | Under the Last-of-Layer Method | Discontinued - Hedge Related | | Total Amount by Amortized Cost Basis | Designated Amount by UPB |
| Mortgage loans held-for-investment | | $855,173 | | | $2,774 | | $— | | $2,774 | | | $— | | $— | |
| Debt | | (124,235) | | | 2,267 | | — | | (30) | | | — | | — | |
| | | | | | | | |
| Freddie Mac 2Q 2022 Form 10-Q | | 75 |
| | | | | |
| Financial Statements | Notes to the Condensed Consolidated Financial Statements | Note 9 |
NOTE 9
Collateralized Agreements and Offsetting Arrangements
Offsetting of Financial Assets and Liabilities The table below presents offsetting and collateral information related to derivatives, securities purchased under agreements to resell, and securities sold under agreements to repurchase which are subject to enforceable master netting agreements or similar arrangements.