10-K: Freddie Mac 2025 Net Income Falls 10% Amid Rising Credit Losses

Freddie Mac reported a 10% decline in net income to $10.7 billion in 2025, driven by lower net revenues and a significant increase in credit loss provisions, while its mortgage portfolio continued to grow.

Summary

• Net income for 2025 was $10.7 billion, a 10% decrease from $11.9 billion in 2024, primarily due to lower net revenues and an increase in the provision for credit losses.
• Net revenues decreased by 3% year-over-year to $23.3 billion in 2025, mainly from lower non-interest income, partially offset by higher net interest income.
• The company's net worth increased to $70.4 billion as of December 31, 2025, up from $59.6 billion at the end of 2024.
• The total mortgage portfolio grew 2% year-over-year to $3.7 trillion as of December 31, 2025, with Single-Family at $3.2 trillion (up 2%) and Multifamily at $496 billion (up 6%).
• Freddie Mac provided $465 billion in liquidity to the mortgage market in 2025, supporting the financing of 1.7 million home purchases, refinancings, and rental units.
• The provision for credit losses increased by 171% to $1.29 billion in 2025, compared to $476 million in 2024, driven by new Single-Family acquisitions, changes in house price index, and Multifamily strategy shift and credit performance deterioration.
• Non-interest expense slightly decreased to $8.62 billion in 2025 from $8.66 billion in 2024, mainly due to lower credit enhancement expense.
• The company continues to operate under conservatorship by the FHFA, with an indefinite termination date, and its future structure and role remain uncertain.
• A material weakness in internal control over financial reporting persists due to the conservatorship, as information known to FHFA may not be adequately communicated to management for disclosure obligations.
• Freddie Mac's Multifamily business strategy shifted to primarily issuing fully guaranteed securitizations, which is expected to increase guarantee net interest income and decrease guarantee income and net investment gains from loan sales in future periods.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing as moderately negative. While the company maintains its mission and shows some operational growth in its portfolio, the significant decline in net income and revenues, coupled with a sharp increase in credit loss provisions, indicates financial underperformance. The ongoing conservatorship and associated uncertainties, including capital shortfalls and legal challenges, continue to weigh heavily on the company's outlook.

Positives

• Net worth increased to $70.4 billion as of December 31, 2025, demonstrating capital growth.
• The total mortgage portfolio grew by 2% to $3.7 trillion, indicating continued market presence and activity.
• Provided $465 billion in liquidity to the mortgage market in 2025, facilitating 1.7 million housing finance transactions.
• Achieved all single-family and multifamily housing goals and Duty to Serve requirements for 2024, demonstrating mission fulfillment.
• Multifamily new business activity increased by 17% to $76.4 billion in 2025, with 66% dedicated to mission-driven affordable housing, exceeding the 50% minimum requirement.
• Non-interest expense decreased slightly in 2025, partly due to lower credit enhancement costs.
• The remaining Treasury funding commitment stands at $140.2 billion, providing significant financial backstop.

Negatives

• Net income decreased by 10% year-over-year to $10.7 billion in 2025.
• Net revenues declined by 3% year-over-year to $23.3 billion in 2025.
• The provision for credit losses significantly increased by 171% to $1.29 billion in 2025.
• Multifamily net income decreased by 39% year-over-year, and non-interest income for the segment dropped by 38%.
• Single-Family non-interest income decreased by 94% in 2025, primarily due to interest rate and spread changes.
• The house price growth rate slowed to 0.7% in 2025 from 4.2% in 2024, indicating a cooling housing market.
• An increase in charge-offs was observed in Multifamily, driven by a pool of senior housing loans in Q3 2025.
• The balance of non-accrual loans increased, primarily due to a rise in seriously delinquent loans.
• A material weakness in internal control over financial reporting related to disclosure controls and procedures persists due to the conservatorship, which is not expected to be remediated while under conservatorship.

Risks

• The future structure and role of Freddie Mac in the mortgage industry are uncertain, with potential for significant changes to its business model or even cessation as a stockholder-owned company.
• FHFA, as Conservator, controls business activities and may require actions that reduce profitability, are difficult to implement, or expose the company to additional risk.
• The Purchase Agreement with Treasury significantly limits business activities, including secondary market operations, loan acquisitions, indebtedness, portfolio size, capital raises, and dividend payments.
• There is a risk of being placed into receivership if assets fall below obligations or debts are not paid, which would have a material adverse effect on stockholders and potentially debt holders.
• The company faces challenges in attracting and retaining well-qualified employees due to the conservatorship, uncertainty about its future, and limitations on executive and employee compensation.
• Mortgage credit risk is significant, with potential for increased credit losses and related costs from borrower defaults, especially with higher LTV ratios or lower credit scores.
• Reliance on a delegated underwriting process for single-family loans exposes the company to risks from sellers' origination operations, data accuracy, and mortgage fraud.
• Declines in national or regional house prices, other adverse changes in the housing market, or deterioration of multifamily property values could negatively affect financial results.
• Exposure to counterparty credit risk exists with sellers, servicers, credit enhancement providers, and financial intermediaries, with potential adverse effects if they fail to meet obligations.
• Loss mitigation activities may be unsuccessful or costly, potentially increasing expenses and delaying foreclosures.
• Deficiencies and delays in the single-family and multifamily foreclosure processes can increase expenses and adversely affect property values.
• Increased credit losses and expenses are possible in the event of natural disasters or catastrophic events, as insurance coverage may be inadequate or unavailable.
• The new issuance market for Credit Risk Transfer (CRT) transactions may not be available in adverse economic conditions, and these transactions inherently increase expenses.
• Changes in interest rates and market spreads could negatively affect the fair value of financial assets and liabilities, results of operations, and net worth.
• A significant decline in the price performance of Uniform Mortgage-Backed Securities (UMBS) could adversely affect the volume and profitability of the Single-Family business.
• If UMBS does not maintain widespread market acceptance, the liquidity and price performance of Single-Family mortgage-related securities, market share, and profitability could be adversely affected.
• The profitability of the Multifamily business could be adversely affected by market competition and/or decreased investor demand for its securities.
• Liquidity risks exist if funding is limited or unavailable, or if the cost of funding increases, potentially exacerbated by credit rating downgrades of the company or the U.S. government.
• Operational risks, including those from inadequate internal processes, people, or systems, or from external events like cybersecurity incidents and third-party failures, could disrupt business and cause financial losses.
• Risks and uncertainties are associated with the models used for business and risk management decisions, as well as financial accounting and reporting, due to inherent imperfections and reliance on judgments.
• The use of AI-based technologies and methods involves inherent risks such as inaccurate predictions, biases, and compliance challenges under evolving laws and regulations.
• Legislative, executive, regulatory, or judicial changes or actions could require operational changes that adversely affect business activities and financial results.
• Non-compliance with legal, regulatory, or contractual obligations could lead to enforcement actions, investigations, fines, and reputational harm.
• Failure to achieve housing goals and Duty to Serve requirements could expose the company to additional legal and compliance risk, reputational damage, and adverse financial effects.

Future Outlook

Freddie Mac anticipates an increase in Multifamily guarantee net interest income and a decline in guarantee income and net investment gains from loan sales due to a strategic shift towards fully guaranteed securitizations. The risk from non-depository counterparties is expected to remain elevated, potentially increasing in 2026, and multifamily loan modification and workout activities are projected to rise. The company's future structure and role in the mortgage industry, including a potential exit from conservatorship, remain uncertain, and building the requisite capital under the ERCF is expected to be very difficult due to ongoing dividend requirements to Treasury. Stock ownership guidelines are expected to remain suspended through conservatorship.

Management Comments

• Kenny M. Smith, CEO, emphasized: "Freddie Mac's mission to make home possible is an important one, impacting millions of families in America. As a trusted financial institution, we must focus not only on our mission and business goals, but also on the manner in which we reach those goals. We seek to always do the right thing in the right way."
• Kenny M. Smith, CEO, stated: "Our reputation and continued success in serving America's borrowers and renters and building a stronger and more affordable U.S. housing system are dependent on everyone at Freddie Mac acting ethically. The Code of Conduct helps ensure we can fulfill our mission reliably and with integrity every day."
• Management concluded, with CMD Committee concurrence, that "the company's compensation programs and practices do not encourage unnecessary or excessive risk behaviors in pursuit of Corporate or Conservatorship Scorecard objectives or otherwise, and that nothing in the executive pay program is likely to create material risk for the company."

Industry Context

StockSavvy.ai notes that Freddie Mac operates as a key player in the U.S. secondary mortgage market, alongside its primary competitors Fannie Mae and FHA/VA (with Ginnie Mae securitization). The ongoing conservatorship by FHFA significantly influences Freddie Mac's strategic direction and competitive positioning, often requiring alignment with Fannie Mae on various activities, which can limit innovation and competition. The Uniform Mortgage-Backed Security (UMBS) market, designed to enhance liquidity and fungibility between Freddie Mac and Fannie Mae securities, underscores this interdependence. The multifamily market, a significant segment for Freddie Mac, is sensitive to local and regional economic factors, interest rates, and the balance between homeownership and renting. The increasing exposure to non-depository institutions in the Single-Family business highlights a broader industry trend where these entities may not possess the same financial strength or regulatory oversight as larger depository institutions. Furthermore, the document indicates rising property insurance premiums and reduced availability in natural disaster-prone areas, reflecting a growing concern across the housing finance industry. The rapid evolution and adoption of AI-based technologies are also identified as a source of new operational and regulatory risks for the company and the broader financial services sector.

Comparison to Industry Standards

• Freddie Mac and Fannie Mae utilize the same Comparator Group for benchmarking executive compensation, ensuring consistency in market data for similar positions across the two government-sponsored enterprises (GSEs).
• Both Freddie Mac and Fannie Mae are transitioning to the FICO 10T and VantageScore 4.0 credit score models and a bi-merge credit reporting requirement, aligning their credit assessment standards.
• Freddie Mac, like Fannie Mae, is required to conduct annual stress tests using scenarios specified by FHFA, providing a standardized assessment of capital adequacy under adverse economic conditions.
• The Enterprise Regulatory Capital Framework (ERCF) establishes uniform capital requirements for both Freddie Mac and Fannie Mae, setting a common benchmark for regulatory capital.
• Freddie Mac and Fannie Mae are jointly owned U.S. Financial Technology, LLC (U.S. FinTech), which operates the mortgage securitization platform, demonstrating a shared infrastructure for key industry functions.
• Freddie Mac's Private Mortgage Insurer Eligibility Requirements (PMIERs) are updated in coordination with FHFA and in alignment with Fannie Mae, ensuring consistent standards for mortgage insurers across the GSEs.
• Freddie Mac's cybersecurity program is designed to align with the National Institute of Standards and Technology (NIST) 800-53 moderate baseline control framework, a widely recognized industry standard for information security.

Management Changes

Corporate Governance

Legal Proceedings

• In the case of Reid and Fisher v. United States of America and Federal Home Loan Mortgage Corporation, the U.S. Court of Federal Claims dismissed the case with prejudice on September 1, 2023, and this dismissal was affirmed by the U.S. Court of Appeals for the Federal Circuit on August 12, 2025.
• In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations resulted in a jury verdict on August 14, 2023, awarding $282 million to Freddie Mac junior preferred shareholders and $31 million to common shareholders; final judgment was entered on March 20, 2024, and both defendants and plaintiffs filed appeals to the U.S. Court of Appeals for the D.C. Circuit in April 2025.

Related Party Transactions

• Freddie Mac is deemed a related party to the U.S. government (including Treasury and FHFA) due to the warrant issued to Treasury to purchase 79.9% of common stock.
• Freddie Mac is deemed a related party with Fannie Mae as both entities are under the common control of FHFA.
• U.S. Financial Technology, LLC (U.S. FinTech), equally owned by Freddie Mac and Fannie Mae, is also considered a related party.
• Freddie Mac contributed $82 million of capital to U.S. FinTech in 2025, bringing total contributions to $1.0 billion since Q4 2014.
• Transactions with Treasury include the allocation of $195 million in 2025 for affordable housing funds and the remittance of $3.0 billion in legislated guarantee fees on single-family loans.

Stakeholder Impact

• Shareholders face continued uncertainty regarding the company's future, potential dilution from Treasury's warrant, and limitations on capital returns due to the conservatorship and dividend requirements.
• Employees may experience challenges in retention and recruitment due to the conservatorship status and restrictions on executive and employee compensation.
• Borrowers and renters benefit from Freddie Mac's mission-driven activities, including liquidity provision, affordable housing initiatives, and loss mitigation programs.
• Lenders and servicers are subject to Freddie Mac's eligibility standards, monitoring, and potential repurchase obligations, with increased scrutiny on non-depository institutions.
• Investors in Freddie Mac's debt and mortgage-backed securities are impacted by the company's credit ratings, market liquidity, and the ongoing uncertainties of the conservatorship and its relationship with Fannie Mae.
• The U.S. housing market benefits from Freddie Mac's role in providing liquidity, stability, and affordability, particularly in underserved markets and during economic stress.

Next Steps

• FHFA will periodically re-size the stress capital buffer and adjust the countercyclical capital buffer based on macro-financial conditions.
• Freddie Mac and Fannie Mae will continue efforts to incorporate new credit score model requirements and implement optional bi-merge credit reports, with a revised, to-be-determined implementation date.
• Freddie Mac and Treasury will mutually agree on a periodic commitment fee after the Capital Reserve End Date.
• The company will continue to invest in strengthening its risk management practices and control environment to meet FHFA's supervisory expectations.
• Ongoing investments will be made to support the development and maintenance of the mortgage securitization platform operated by U.S. FinTech.
• Freddie Mac will continue to enhance its enterprise capabilities to manage third-party operational risks, including those related to subcontractors and service providers.
• The company will continue to manage its debt issuances to remain compliant with aggregate indebtedness limits imposed by the Purchase Agreement.
• Freddie Mac will continue to monitor regulatory and policy developments regarding its future structure and role in the mortgage industry.

Key Dates

Recommendation

Freddie Mac's stock is currently under conservatorship, which severely limits its operational autonomy and ability to maximize shareholder value. While the company fulfills a critical mission in the U.S. housing market and shows some operational strengths like portfolio growth and meeting housing goals, the 2025 financial results indicate a decline in net income and revenues, coupled with a significant increase in credit loss provisions. The persistent material weakness in internal controls and ongoing legal challenges further add to the uncertainty. Given the indefinite nature of the conservatorship, the lack of control over strategic direction, and the significant capital shortfalls under regulatory frameworks, a seasoned investor would likely maintain existing positions but refrain from new investments until there is clearer guidance on the company's future and a path out of conservatorship.

Keywords

Freddie Mac, Mortgage Finance, Housing Market, Conservatorship, SEC 10-K, Annual Report, Financial Results, Credit Risk, Market Risk, Liquidity, Corporate Governance, Single-Family, Multifamily, Housing Goals, Risk Management, Capital Requirements, UMBS, Credit Risk Transfer, FHFA, Treasury