In another sign the housing market has been strengthening, Freddie Mac recently reported $11 billion in net income in 2012. This profitability compares to a net loss of $5.3 billion in 2011. Comprehensive income was $16 billion in 2012.
The company also reported that default rates were below industry averages despite the fact that 63 percent of its portfolio was single-family loan guarantee business, 11 percent of which were HARP loans. Home Affordable Refinance Program loans have more than an 80 percent loan-to-value ratio. The refinance loan-to-value ratio has risen to 97 percent compared to 77 percent in 2011. The portfolio share of loans originated in 2005 to 2008 (the riskier loans) is declining.
Freddie Mac’s CEO Donald H. Layton commented on the numbers:
In 2012, Freddie Mac significantly improved its financial performance and returned more than $7 billion to America’s taxpayers through dividends. It’s clear from our earnings that the housing market has turned a corner and that our work to minimize legacy losses and build a strong new book of business is paying off.
Freddie Mac helped 2.5 million families finance, refinance or rent housing in 2012. More than 170,000 Freddie Mac assisted borrowers avoided foreclosure through programs like HARP. The average first twelve month interest savings for those refinanced homeowners is estimated at $3,200. Freddie Mac doubled its HARP purchases in 2012. The company has also been selling almost two-thirds of its foreclosed homes to owner-occupants in order to “stabilize communities.”
As of December 31st, Freddie Mac required no additional draws from the U.S. Treasury because it had achieved a position of positive net worth. In the past, Freddie Mac was engaged in a “circular” practice of drawing from the Treasury in order to pay dividends to Treasury. The new formula links the dividend payment to Freddie Mac’s net worth (above a permitted capital reserve).