Freddie Mac and Fannie Mae See Higher Delinquency Rates in Q3

The third quarter of 2024 has experienced an uptick in delinquency rates in multifamily for both Freddie Mac and Fannie Mae.

For Freddie Mac, first-quarter delinquencies were 0.44% in January, 0.35% in February, and 0.34% in March. Q2 had 0.35% in April, 0.36% in May, and 0.38% in June. The third quarter was 0.39% in July, 0.38% in August, and 0.39% in September. The increase in the third quarter was “primarily driven by an increase in delinquent floating rate loans including small balance loans that are in their floating rate period.”

Fannie Mae saw 0.54% in January, 0.53% in February, and 0.51% in March. For April it was 0.49%, 0.48% in May, and 0.48% in June. Then, 0.49% in July, 0.50% in August, and 0.52% in September for Q3.

As far as cross-exposure between the two organizations and the end of September, Freddie Mac’s maximum exposure to Fannie Mae-issued collateral included in Freddie Mac-issued re-securitizations was about $105.8 billion. Fannie Mae’s maximum exposure to Freddie Mac collateral included in outstanding Fannie Mae re-securitizations was $203.7 billion.

Fannie Mae reported $4.0 billion net income for the third quarter, which was the 27th continuous quarter of consecutive positive results. Net income decreased by $440 million in Q3 compared to the second quarter. It financed about 103,000 units of multifamily housing with a “significant majority” for households earning at or below 120% of the median area income.

Fannie Mae’s net worth increased to $90.5 billion and it reduced its minimum regulatory capital shortfall by $17 billion. “Despite ongoing challenges in housing affordability, we provided $106 billion in liquidity, helping 383,000 households to buy, refinance, or rent homes,” Priscilla Almodovar, president and CEO of the government-sponsored enterprise, said in prepared remarks.

“In Multifamily, we recorded a $424 million provision for credit losses, up $176 million from the prior quarter,” chief financial officer Chryssa Halley said on the earnings call. “The third quarter provision was largely driven by ARM loans that were written down during the period and modest decreases in forecasted property values. We have reflected some uncertainty in the allowance for property value projections and assume it will take longer to see a recovery. Our multifamily allowance also reflects uncertainty relating to the ongoing investigation of lending transactions with suspected fraud.”

Freddie Mac financed 131,000 rental units during the third quarter, with 94% of them affordable to low- to moderate-income families and 68% affordable to low-income families. Net income of $3.1 billion was an increase of $0.4 billion year over year, largely due to a decline in non-interest expense. Net revenues were $5.8 billion, a 3% year-over-year increase. Net multifamily revenues were $0.8 billion, with a net income of $0.5 billion.

“The segment reported net income of $532 million, an increase of 47% or $170 million from the prior year quarter,” said James Whitlinger, senior vice president and interim chief financial officer of Freddie Mac, during the most recent earnings call. “This increase was primarily driven by a benefit for credit losses in the current quarter and lower noninterest expense compared to the same quarter last year.”

“We have seen a slight pickup in demand for multifamily mortgage financing as interest rates declined this quarter,” Whitlinger added. “Our multifamily new business activity was $15 billion for the third quarter, bringing the year-to date volume to $35 billion versus $32 billion for the same period last year.”