10-Q: Freddie Mac Q3 2025 Net Income Dips Amid Credit Reserve Build

Freddie Mac reported a net income of $2.8 billion for Q3 2025, an 11% decrease year-over-year, primarily due to a credit reserve build.

Summary

• Net income for the third quarter of 2025 was $2.8 billion, an 11% decrease from $3.1 billion in the third quarter of 2024.
• Net revenues for Q3 2025 were $5.7 billion, a 2% decrease year-over-year from $5.8 billion.
• Net worth increased to $67.6 billion as of September 30, 2025, up from $56.4 billion as of September 30, 2024.
• The liquidation preference of the senior preferred stock was $137.5 billion on September 30, 2025, and is projected to increase to $140.2 billion on December 31, 2025.
• The mortgage portfolio grew 2% year-over-year to $3.6 trillion at September 30, 2025, with Single-Family at $3.1 trillion (up 2%) and Multifamily at $480 billion (up 6%).
• Freddie Mac provided $124 billion in liquidity to the mortgage market in 3Q 2025, facilitating the financing of 483,000 home purchases, refinancings, and rental units.
• A provision for credit losses of $175 million was recorded in 3Q 2025, primarily due to a credit reserve build in Single-Family, contrasting with a $191 million benefit in 3Q 2024.
• The Single-Family segment's net income was $2.3 billion, down 9% year-over-year, while the Multifamily segment's net income was $0.4 billion, down 20% year-over-year.
• The Single-Family serious delinquency rate increased to 0.57% as of September 30, 2025, from 0.54% a year prior.
• The Multifamily delinquency rate rose to 0.51% at September 30, 2025, from 0.40% at December 31, 2024, driven by delinquent floating rate and small balance loans.

Sentiment

Score: 4

Explanation: While the mortgage portfolio continues to grow and affordable housing goals were met, the significant decline in net income and revenues, coupled with a substantial credit reserve build and rising delinquency rates, indicates deteriorating financial performance. The ongoing conservatorship and material weakness in internal controls add to the negative sentiment.

Positives

• Net worth increased to $67.6 billion as of September 30, 2025, up from $56.4 billion as of September 30, 2024.
• The mortgage portfolio grew 2% year-over-year to $3.6 trillion, with Single-Family up 2% and Multifamily up 6%.
• Provided $124 billion in liquidity to the mortgage market in 3Q 2025, supporting 483,000 home purchases, refinancings, and rental units.
• Guarantee net interest income increased by $194 million (5%) in 3Q 2025 vs. 3Q 2024, and $647 million (5%) YTD 2025 vs. YTD 2024, driven by portfolio growth and Multifamily strategy changes.
• The impact on net interest income from hedge accounting decreased (lower expense) by $404 million (74%) in 3Q 2025 vs. 3Q 2024, and $1,078 million (58%) YTD 2025 vs. YTD 2024.
• Credit enhancement expense decreased by $127 million (21%) in 3Q 2025 vs. 3Q 2024, and $261 million (14%) YTD 2025 vs. YTD 2024, due to lower CRT volume in Single-Family and lower STACR Trust note repurchase losses.
• Multifamily new business activity increased, with approximately 68% of YTD 2025 activity being mission-driven affordable housing, exceeding FHFA's 50% minimum requirement.
• FHFA confirmed the achievement of all single-family and multifamily affordable housing goals and subgoals for 2024.
• FHFA doubled the amount of equity Freddie Mac can invest in Low Income Housing Tax Credit (LIHTC) properties from $1 billion to $2 billion annually.

Negatives

• Net income decreased by 11% to $2.8 billion in 3Q 2025 compared to $3.1 billion in 3Q 2024.
• Net revenues decreased by 2% to $5.7 billion in 3Q 2025 compared to $5.8 billion in 3Q 2024.
• A provision for credit losses of $175 million was recorded in 3Q 2025, compared to a benefit of $191 million in 3Q 2024, primarily due to a credit reserve build in Single-Family.
• Non-interest income decreased by $555 million (66%) in 3Q 2025 vs. 3Q 2024, and $1,246 million (43%) YTD 2025 vs. YTD 2024, mainly due to less favorable fair value changes and investment losses.
• Investment gains (losses), net, decreased significantly in 3Q 2025 vs. 3Q 2024, primarily due to losses in Single-Family driven by interest rate and spread changes.
• Single-Family net income decreased by 9% year-over-year to $2.3 billion.
• Multifamily net income decreased by 20% year-over-year to $0.4 billion.
• The Single-Family serious delinquency rate increased to 0.57% as of September 30, 2025, from 0.54% as of September 30, 2024, driven by loans originated in 2022 and later.
• The Multifamily delinquency rate increased to 0.51% at September 30, 2025, from 0.40% at December 31, 2024, due to delinquent floating rate loans and small balance loans.
• The balance of non-accrual loans increased 2% from December 31, 2024, to September 30, 2025, primarily due to Multifamily senior housing loans and a 1% increase in Single-Family.
• Forecasted house price growth rates for 12-month forward and 13to 24-month forward decreased significantly from December 31, 2024, to September 30, 2025 (e.g., 12-month forward from 2.7% to 0.7%).
• Freddie Mac continues to operate in conservatorship with an uncertain future and no specified termination date.
• A material weakness in internal control over financial reporting exists due to the inability to update disclosure controls to ensure timely communication of FHFA information to management while under conservatorship.

Risks

• Conservatorship Uncertainty: The company's future is uncertain, with no specified termination date for the conservatorship, and potential changes to its business model, including its continued existence.
• Economic and Market Conditions: Adverse changes in interest rates, volatility, spreads, employment rates, immigration policy, inflation, and house prices can significantly affect business and financial results.
• Regulatory and Legislative Actions: Actions by federal and state governments (FHFA, Treasury, Congress) can restrict operations, require specific actions, or change capital requirements, impacting business strategies.
• Interest Rate Risk: Exposure to adverse changes in interest rates, volatility, and spreads, which can affect future cash flows, economic value, earnings, and net worth.
• Credit Risk: Exposure to losses from borrower defaults, evidenced by increasing serious delinquency rates in Single-Family and Multifamily portfolios.
• Geographic Concentrations: Concentrations of credit risk in certain geographic areas make the portfolio vulnerable to local economic conditions, changes in property insurance markets, and state/municipal laws limiting foreclosure or eviction.
• Fair Value Sensitivity: GAAP accounting treatment for financial assets and liabilities creates significant earnings variability from period to period based on changes in market conditions, and hedge accounting may not always be effective in reducing this volatility.
• Operational Risk: Risks related to maintaining the security and resiliency of operational systems and infrastructure, including against cybersecurity incidents or other security incidents.
• Third-Party Reliance: Reliance on U.S. Financial Technology, LLC (Common Securitization Solutions, LLC) and the Common Securitization Platform (CSP) for the majority of Single-Family securitization activities, with limited influence over board decisions.
• Accounting Estimates: Critical accounting estimates, particularly for the Single-Family allowance for credit losses, involve significant management judgment and are highly sensitive to changes in forecasted house price growth rates.
• Litigation Risk: Involvement in various legal and regulatory proceedings, including class action lawsuits challenging the net worth sweep dividend provisions and the constitutionality of FHFA's structure.
• Internal Control Material Weakness: A material weakness in internal control over financial reporting exists due to the inability to update disclosure controls to ensure timely communication of FHFA information to management, which is unlikely to be remediated while under conservatorship.

Future Outlook

Freddie Mac's future remains uncertain due to its conservatorship, which has no specified termination date. The company cannot predict if or when potential transactions, such as a public offering of equity or an exit from conservatorship, might occur or on what terms. A business strategy change is expected to shift credit risk transfer primarily to MSCR and MCIP transactions rather than subordination. Forecasted house price growth rates have declined, indicating a potential cooling in the housing market. FHFA has proposed new affordable housing goals for 2026-2028, including combining certain subgoals. The company anticipates an increase in Single-Family servicing concentration with Rocket Companies following its recent acquisition.

Management Comments

• "We believe the support provided by Treasury pursuant to the Purchase Agreement currently enables us to have adequate liquidity to conduct normal business activities."
• "We cannot predict whether or when any of these transactions could take place or on what terms." (Regarding potential transactions involving Freddie Mac and Fannie Mae, including a public offering or exit from conservatorship).
• "We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q."
• "We consider this situation to be a material weakness in our internal control over financial reporting. Given the inherent nature of this ongoing weakness, we believe it is unlikely that we will be able to remediate this material weakness while under conservatorship." (Regarding disclosure controls and procedures).

Industry Context

Freddie Mac's performance reflects its core mission of providing liquidity, stability, and affordability to the U.S. housing market. The reported increase in Single-Family and Multifamily delinquency rates, coupled with a significant credit reserve build and declining forecasted house price growth, suggests a potential softening in the broader mortgage and housing markets. The growth in the Multifamily segment's new business activity, driven by a larger originations market and competitive strategies, indicates continued demand for rental housing. The acquisition of Mr. Cooper Group Inc. by Rocket Companies, Inc. and the anticipated increase in Freddie Mac's servicing concentration with Rocket Companies highlights ongoing consolidation and strategic shifts within the mortgage servicing industry. Regulatory actions by FHFA, such as doubling LIHTC investment limits and proposing new affordable housing goals, underscore the government's continued focus on supporting affordable housing initiatives.

Comparison to Industry Standards

• Freddie Mac's Multifamily segment exceeded FHFA's minimum requirement of 50% for mission-driven affordable housing, achieving approximately 68% of its YTD 2025 activity in this area.
• The company achieved all of its single-family and multifamily affordable housing goals and subgoals for 2024, as determined by FHFA.

Corporate Governance

Legal Proceedings

• Ohio Public Employees Retirement System v. Freddie Mac, Syron, et al.: District Court granted summary judgment for defendants on August 29, 2025. Plaintiff filed a notice of appeal to the U.S. Court of Appeals for the Sixth Circuit on September 23, 2025.
• In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations / Fairholme Funds, Inc., et al. v. FHFA, et al. (D.C. Lawsuit): Jury returned a verdict on August 14, 2023, awarding $282 million to junior preferred shareholders and $31 million to common shareholders. District Court denied defendants' motion for judgment notwithstanding the verdict on March 14, 2025. Defendants, individual plaintiffs, and class plaintiffs all filed appeals to the U.S. Court of Appeals for the D.C. Circuit in April 2025, with briefing to be completed in February 2026.
• Reid and Fisher v. United States of America and Federal Home Loan Mortgage Corporation: Derivative lawsuit alleging unlawful taking. Dismissed by Court of Federal Claims on September 1, 2023, and affirmed by the Federal Circuit on August 12, 2025.

Related Party Transactions

• The Purchase Agreement with Treasury is a critical related party transaction, involving the issuance of senior preferred stock and a warrant to purchase common stock, essential for Freddie Mac's solvency.
• Aggregate draws under the Purchase Agreement totaled $71,648 million as of September 30, 2025.
• Aggregate cash dividends paid to Treasury totaled $119,680 million as of September 30, 2025.

Stakeholder Impact

• Shareholders (Common & Preferred): Net income decline and ongoing litigation (D.C. lawsuit) create uncertainty, though a jury verdict awarded damages to shareholders (under appeal). Conservatorship continues to limit shareholder rights and potential for equity offerings.
• U.S. Housing Market/Borrowers: Freddie Mac provided $124 billion in liquidity, supporting 483,000 home purchases, refinancings, and rental units, contributing to market stability and affordability. Borrower assistance programs continue to help distressed borrowers.
• Lenders/Servicers: Freddie Mac's purchase and securitization activities provide liquidity to lenders. Changes in servicing concentration due to acquisitions (e.g., Rocket Companies acquiring Mr. Cooper Group Inc.) impact servicers.
• U.S. Government/Taxpayers: The conservatorship and Purchase Agreement with Treasury remain critical for Freddie Mac's solvency. The liquidation preference of senior preferred stock continues to grow, representing a potential future obligation.
• Employees: Salaries and employee benefits expense remained stable year-over-year, with no specific adverse impact mentioned.

Next Steps

• Monitor regulatory and policy developments regarding conservatorship and potential transactions.
• Continue to manage interest-rate risk related to financial instruments.
• Complete briefing for the D.C. lawsuit appeal by February 2026.
• Address the material weakness in internal control over financial reporting, though remediation is unlikely while in conservatorship.

Key Dates

Recommendation

While Freddie Mac demonstrates continued market support through liquidity provision and portfolio growth, the significant decline in net income and revenues, coupled with a substantial credit reserve build and rising delinquency rates, presents headwinds. The ongoing conservatorship, material weakness in internal controls, and unresolved legal proceedings create considerable uncertainty. The company's mission-driven activities and regulatory support provide a floor, but the financial performance trends and external constraints suggest a cautious 'hold' stance until there is greater clarity on its future structure and sustained improvement in credit quality.

Keywords

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