Freddie Mac · OTC:FMCC
Freddie Mac — Federal Home Loan Mortgage — Q2 2008 Earnings Presentation
51 slides from Freddie Mac's earnings presentation, Aug 6, 2008
Slide 1: Freddie Mac's Second Quarter 2008 Financial Results
Freddie Mac's Second Quarter 2008 Financial Results August 6, 2008
Slide 2: GAAP financial results
GAAP financial results ($ Millions) Net interest income [Management and guarantee income Non-interest income (loss) Mark-to-market Income on GO ‘other Total revenues |Administrative expenses |credit-related expenses [Nom-interest expense Marksto-market other Total expenses. Income (loss) before taxe
Slide 3: GAAP interest rate sensitivity has decreased
GAAP interest rate sensitivity has decreased 1 Changes attributed to spreads relies on models, assumptions and other measurement techniques that will evolve over time. 2 Estimate of interest rate sensitivity based on 5-year swap rate. Actual sensitivity will depend on the slope of the yield curve an
Slide 4: Reversal of mark-to-market items adds to earnings
Reversal of mark-to-market items adds to earnings
Slide 5: Credit summary
Credit summary Realized credit losses increased from $528 million to $810 million between 1Q08 and 2Q08: 79% of loss increase due to Alt-A - vs. 10% of UPB 87% of loss increase occurred in 06/07 books - vs. 36% of UPB Provision increased from $1.2 billion to $2.5 billion between 1Q08 and 2Q08: Sever
Slide 6: Reserve for loan losses
Reserve for loan losses Reserve for loan losses increased significantly between 2Q 2007 and 2Q 2008
Slide 7: Summary of AFS security impairments
Summary of AFS security impairments 1 Assumes full accretion back to earnings. Actual results may vary and amounts realized may be materially less than indicated. Factors that could influence amounts realized include actual losses on impaired assets, and other factors that may impact the receipt of
Slide 8: Incremental default rates required to incur a dollar loss (Alt-A and MTA floaters)
Incremental default rates required to incur a dollar loss, after defaulting the 60+ day delinquent population Despite higher delinquency rates relative to the rest of the Alt-A portfolio, less than $1.7 billion of the Alt-A floating-rate 2006 & 2007 vintage have incremental breakeven default rates o
Slide 9: Incremental default rates required to incur a dollar loss (fixed-rate and hybrid Alt-A)
Incremental default rates required to incur a dollar loss, after defaulting the 60+ day delinquent population The vast majority of both fixed-rate and hybrid Alt-A are from the 2005 and prior vintage, which have performed better than the 2006 & 2007 vintage. Delinquency rates on all but the worst pe
Slide 10: Subprime portfolio - incremental default rates required to incur a dollar loss
Subprime portfolio - incremental default rates required to incur a dollar loss, after defaulting the 60+ day delinquent population The graphs above depict a summary view of the cashflow analysis performed on every bond in order to determine whether we expect contractual cash shortfalls. In this anal
Slide 11: Capital overview
Capital overview 1 Core capital consists of the par value of outstanding common stock (common stock issued less common stock held in treasury), the par value of outstanding non-cumulative perpetual preferred stock, additional paid-in capital and retained earnings, as determined in accordance with GA
Slide 12: Capital vs. Statutory Minimum Requirement
Capital vs. Statutory Minimum Requirement 1,2 1 Amounts include 1H08 credit expenses and impairments totaling $5.4 billion, completion of announced $5.5 billion capital raise, reduction of common dividend to $0.05 per share. 2 The above chart depicts the effect of different ABS impairment and credit
Slide 13: Potential single-family lifetime credit costs
Potential single-family lifetime credit costs1 ($ in Billions) 1 These tables are for indicative purposes only. They do not reflect the company's views on the likelihood of any potential outcome with respect to defaults or severities on its mortgage portfolio. Actual results may differ substantially
Slide 14: Credit profile of worst new quintile of new guarantees
Credit profile of worst new quintile of new guarantees 1 Credit characteristics on new single-family deliveries are measured as of the end of the period listed.
Slide 15: Improved fundamentals in single-family guarantee business
Improved fundamentals in single-family guarantee business GSE market share of new issuances Expected all-in g-fees on new volumes Source: Inside Mortgage Finance and Freddie Mac. Note: All-in g-fees reflect contractual amounts as well as deferred delivery fee amounts which we recognized as a compone
Slide 16: Improved fundamentals in retained portfolio
Improved fundamentals in retained portfolio Retained portfolio commitments, net Mortgage-to-LIBOR OAS Source: Freddie Mac and Lehman Live. Agency Fixed Rate CC LIBOR: 5 yr Avg. OAS = (1.8) bps June 30 OAS = 43 bps Agency 5/1 LIBOR: 2 yr Avg. OAS = 34.5 bps June 30 OAS = 71 bps
Slide 17: Appendix
Freddie A Mac ‘We make home possible” Appendix
Slide 18: Quarterly mark-to-market items
Quarterly mark-to-market items
Slide 19: 2Q 2008 GAAP net interest yield analysis
2Q 2008 GAAP net interest yield analysis
Slide 20: States and Washington DC had house price declines from 2Q 2007 to 2Q 2008
39 States and Washington DC had house price declines from 2Q 2007 to 2Q 20081 1 National home prices use the internal Freddie Mac index, which is value-weighted based on Freddie Mac's single-family portfolio. Source: Freddie Mac. - -5 to 0% United States -9.5% -3.8 0.5 - -3.4 - -15.9 - -25.4 - -3.8
Slide 21: National home prices have continued to decline
National home prices have continued to decline1 Quarterly home price change 1 National home prices use the internal Freddie Mac index, which is value-weighted based on Freddie Mac's single-family portfolio. Source: Freddie Mac. 2Q 2008
Slide 22: Delinquencies are low relative to the industry
199 88 Delinquencies are low relative to the industry 90-day or more delinquencies 1 Includes structured transactions. Delinquency rate excluding all structured transactions was 0.93% at June 30, 2008. Source: Mortgage Bankers Association and Freddie Mac. Annual numbers taken at end of fourth quarte
Slide 23: Single-family credit losses by book year, state, and mortgage product
Single-family credit losses by book year, state, and mortgage product 1 National home prices use the internal Freddie Mac index, which is value-weighted based on Freddie Mac's single-family portfolio. 2 Based on unpaid principal balance of the underlying mortgage loans in the single-family mortgage
Slide 24: Alt-A and Non-Alt-A credit losses by state
Alt-A and Non-Alt-A credit losses by state
Slide 25: Credit loss summary: Alt-A
Credit loss summary: Alt-A 1 Non-loan level losses are allocated among categories based on relative weight of losses for which there is loan level data. 2 Represents Alt-A UPB as a percentage of the respective book years or states as indicated in the table. 3 Annualized total credit losses in basis
Slide 26: Credit loss summary: Non-Alt-A
Credit loss summary: Non-Alt-A 1 Non-loan level losses are allocated among categories based on relative weight of losses for which there is loan level data. 2 Annualized total credit losses in basis points are calculated based on Total Non-Alt-A UPB at June 30, 2008 for the respective book years or
Slide 27: Single-family credit guarantee portfolio characteristics
Single-family credit guarantee portfolio characteristics 1 Based on the unpaid principal balance of the underlying mortgage loans in the single-family mortgage portfolio. In 2Q08, we enhanced our disclosures to include all structured transactions where loan characteristics data exists. 2 Represents
Slide 28: Single-family credit guarantee portfolio characteristics (by vintage)
Single-family credit guarantee portfolio characteristics 1 Based on the unpaid principal balance of the underlying mortgage loans in the single-family mortgage portfolio. In 2Q08, we enhanced our disclosures to include all structured transactions where loan characteristics data exists. 2 Vintage ind
Slide 29: Alt-A credit profile by vintage and product feature
Alt-A credit profile by vintage and product feature Note: Vintage indicates year of loan origination.
Slide 30: Total Single-family guarantee portfolio cumulative default rates by vintage year
Total Single-family guarantee portfolio cumulative default rates by vintage year Cumulative Default Rates - Overall Originations from 2000 to 2007
Slide 31: Single-family Alt-A cumulative default rates by vintage year
Single-family Alt-A cumulative default rates by vintage year Cumulative Default Rates - Alt-A Originations from 2000 to 2007
Slide 32: Total Single-family portfolio serious delinquencies
Total Single-family portfolio serious delinquencies Serious Delinquencies - Alt-A compared to Rest of Book1 1 Percentage based on loan counts. Includes structured transactions.
Slide 33: Single-family portfolio delinquencies by book year
Single-family portfolio delinquencies by book year: Months 6 - 18 Note: Excludes structured transactions. Book year indicates year of loan origination.
Slide 34: Total Single-family portfolio delinquencies in bps
Total Single-family portfolio delinquencies in bps1 60 days to 89 days delinquent 30 days to 59 days delinquent Seriously delinquent ( 90 days + or foreclosure ) 1 Includes structured transactions.
Slide 35: Roll rates on total Single-family portfolio
Roll rates on total Single-family portfolio1 60 + to 90 + Delinquent 30 + to 60 + Delinquent 90 + to foreclosure 1 Primarily excludes structured transactions.
Slide 36: Summary of Alt-A & MTA ABS securities by book year
Summary of Alt-A & MTA ABS securities by book year Alt-A ABS Holdings: $21.6 billion (excludes impaired securities) We divided the Alt-A ABS Portfolio into its three main components: Fixed-Rate Passthroughs, Hybrid Passthroughs and Floaters. Unlike the overall market, the majority of the Alt-A book
Slide 37: Summary of stress test results
Summary of stress test results Note: Mononline stress test results excludes approximately $325 million in UPB of bonds backed by manufactured housing loans.
Slide 38: Subprime ABS securities stress test results
Subprime ABS securities stress test results
Slide 39: Alt-A ABS securities stress test results
Alt-A ABS securities stress test results
Slide 40: MTA ABS securities stress test results
MTA ABS securities stress test results
Slide 41: Monoline stress test results
Monoline stress test results Note: Mononline stress test results excludes approximately $325 million in UPB of bonds backed by manufactured housing loans.
Slide 42: Consolidated Segment Earnings
Consolidated Segment Earnings1 1 Segment Earnings is a non-GAAP measure of performance. For additional information about the company's segments and reconciliation to GAAP results, see the company's Registration Statement on Form 10 filed with the SEC on July 18, 2008.
Slide 43: Segment Earnings - Investments
Segment Earnings - Investments1 1 Segment Earnings is a non-GAAP measure of performance. For additional information about the company's segments and reconciliation to GAAP results, see the company's Registration Statement on Form 10 filed with the SEC on July 18, 2008.
Slide 44: Net interest income (NII) / Net interest yield (NIY)
Net interest income (NII) / Net interest yield (NIY) 1 Segment Earnings is a non-GAAP measure of performance. For additional information about the company's segments and reconciliation to GAAP results, see the company's Registration Statement on Form 10 filed with the SEC on July 18, 2008.
Slide 45: Segment Earnings - Single-family Guarantee
Segment Earnings - Single-family Guarantee1 1 Segment Earnings is a non-GAAP measure of performance. For additional information about the company's segments and reconciliation to GAAP results, see the company's Registration Statement on Form 10 filed with the SEC on July 18, 2008.
Slide 46: 2Q 2008 guarantee fees
2Q 2008 guarantee fees GAAP includes Single-family Guarantee and Multifamily fees while Segment results contains only Single-family Guarantee fees. Contractual G-fee (spread): Both measures start with the contractual g-fee rate. GAAP includes the impact of buy- ups and buy-downs, which are adjusted
Slide 47: Segment Earnings - Multifamily
Segment Earnings - Multifamily1 1 Segment Earnings is a non-GAAP measure of performance. For additional information about the company's segments and reconciliation to GAAP results, see the company's Registration Statement on Form 10 filed with the SEC on July 18, 2008.
Slide 48: Segment Earnings - All Other
Segment Earnings - All Other1,2 1 Segment Earnings is a non-GAAP measure of performance. For additional information about the company's segments and reconciliation to GAAP results, see the company's Registration Statement on Form 10 filed with the SEC on July 18, 2008. 2 All Other includes corporate
Slide 49: Change in fair value of net assets
Change in fair value of net assets 1 Impact of OAS includes spread related gains/losses for Freddie Mac's preferred stock and relies on models, assumption, and other measurement techniques that will evolve over time. 2 Line 4 and line 5 include the impact of new business that is associated with Fred
Slide 50: Freddie Mac obligations
Freddie Mac obligations Freddie Mac's securities are obligations of Freddie Mac only. The securities, including any interest or return of discount on the securities, are not guaranteed by and are not debts or obligations of the United States or any federal agency or instrumentality other than Freddi
Slide 51: We make home possible
mis We make home possible™
Federal Home Loan Mortgage — Q2 2008 Earnings Presentation on 6ix