In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Tuesday, August 07, 2012

Freddie Mac: Increase in Home Prices contributes to Lower Credit Losses

by Calculated Risk on 8/07/2012 03:30:00 PM

From Tom Lawler:

Freddie Mac reported that its GAAP net income “attributable” to Freddie Mac was $3.020 billion last quarter, up from $577 million in the previous quarter and a net loss of $2.371 billion in the second quarter of 2011. The biggest “swing” factor last quarter was a sharp drop in the provision for credit losses -- $155 million last quarter compared to $1.825 billion in the previous quarter and $2.529 billion in the comparable quarter of last year.

Freddie attributed the sharp drop in its loss provision – which fell far short of charge-offs, resulting in a steep drop in its loan loss reserves – to “improvements in the number of newly impaired loans and to lower estimated future losses due to the positive impact of an increase in national home prices.” Freddie’s internal national home price index, which is based on repeat transactions of homes backed by mortgages owned or guaranteed by Freddie or Fannie with state weights based on Freddie’s SF mortgage book, jumped by 4.8% from March to June, and the June HPI was up about 1.0% from a year ago.

Freddie’s GAAP net income “attributable” to stockholders last quarter was $1.212 billion, reflecting the $1.808 billion in dividends paid to Treasury’s senior preferred stock. Freddie’s GAAP net worth at the end of June was $1.086 billion, and as a result Freddie does not need another Treasury “draw.”

On the SF REO front, Freddie’s SF REO acquisitions last quarter totaled 20,003, down from 23,805 in the previous quarter and 24,788 in the second quarter of last year. Freddie’s SF REO dispositions last quarter totaled 26,069, up from 25,033 in the previous quarter but down from 29,348 in the second quarter of last year. As a result, Freddie’s SF REO inventory at the end of June was 53,271, down from 59,307 at the end of March and 60,599 a year ago.

Freddie attributed the relatively low level of REO acquisitions last quarter to (1) the length of the foreclosure process, especially in states that require a judicial foreclosure process; and (2) resource constraints on foreclosure activities for five large servicers involved in a recent settlement with a coalition of state attorneys general and federal agencies.

Freddie REO Click on graph for larger image.

From CR: The following graph shows REO inventory for Freddie.

REO inventory for Freddie decreased in Q2. After Fannie announces results I'll post a graph of REO for the F's (Fannie, Freddie, and the FHA). FHA REO increased in Q2 to 40,217 from 35,613 in Q1.