10-Q: Freddie Mac Reports Q2 2025 Net Income Decline Amid Rising Credit Loss Provisions

Freddie Mac reported a 14% decrease in net income to $2.4 billion for Q2 2025, primarily due to a significant increase in the provision for credit losses, despite moderate portfolio growth.

Summary

• Net income was $2.4 billion for Q2 2025, a 14% decrease from $2.8 billion in Q2 2024.
• Net revenues were $5.9 billion for Q2 2025, a 1% decrease year-over-year, primarily due to lower non-interest income, partially offset by higher net interest income.
• Net worth increased to $64.8 billion as of June 30, 2025, up from $53.2 billion as of June 30, 2024.
• The mortgage portfolio increased 2% year-over-year to $3.6 trillion at June 30, 2025, with the Single-Family portfolio at $3.1 trillion (up 2%) and Multifamily portfolio at $466 billion (up 4%).
• Provided $106 billion in liquidity to the mortgage market in Q2 2025, enabling the financing of 363,000 home purchases, refinancings, and rental units.
• The provision for credit losses increased by 99% to ($783) million in Q2 2025, primarily driven by a credit reserve build in Single-Family attributable to lower estimated market values of single-family properties and lower forecasted house price growth rates.
• Credit enhancement coverage was 62% for the Single-Family mortgage portfolio and 92% for the Multifamily mortgage portfolio as of June 30, 2025.
• The Single-Family serious delinquency rate increased to 0.55% as of June 30, 2025, compared to 0.50% as of June 30, 2024.
• The Multifamily delinquency rate increased to 0.47% at June 30, 2025, compared to 0.40% at December 31, 2024, driven by an increase in delinquent floating rate loans and small balance loans.
• Forecasted house price growth rates for the 12-month forward period declined to 1.3% at June 30, 2025, from 2.7% at December 31, 2024.
• Freddie Mac reported a significant capital shortfall under the ERCF, with Adjusted total capital at ($13) billion compared to a requirement of $148 billion as of June 30, 2025.

Sentiment

Score: 3

Explanation: The significant decline in net income and revenues, coupled with a sharp increase in credit loss provisions and rising delinquency rates, indicates a challenging financial quarter. The material weakness in internal controls and the ongoing conservatorship add to the negative sentiment. While portfolio growth and liquidity provision are positive, they are overshadowed by the financial performance and credit quality deterioration.

Positives

• Net worth increased to $64.8 billion as of June 30, 2025, up from $53.2 billion as of June 30, 2024.
• The mortgage portfolio grew 2% year-over-year to $3.6 trillion, demonstrating continued moderate growth.
• Provided substantial liquidity of $106 billion to the mortgage market in Q2 2025, supporting a large volume of housing finance activities.
• Guarantee net interest income increased by $220 million (6%) in Q2 2025 due to continued mortgage portfolio growth and a strategic shift in Multifamily securitizations.
• Credit enhancement expense decreased by $77 million (13%) in Q2 2025, reflecting lower outstanding CRT transactions and reduced losses on STACR Trust note repurchases.
• Single-Family new business activity increased, primarily driven by a rise in refinance activity.
• Multifamily new business activity increased, with 72% of YTD 2025 activity focused on mission-driven affordable housing, exceeding FHFA's 50% minimum requirement.
• Outstanding commitments to purchase or guarantee multifamily assets increased to $27.0 billion at June 30, 2025, from $18.8 billion at June 30, 2024, due to declining interest rates, a higher loan purchase cap, and competitive strategies.
• 97% of delinquent loans in the Multifamily mortgage portfolio are covered by some form of credit enhancement.

Negatives

• Net income decreased by 14% to $2.4 billion in Q2 2025 compared to Q2 2024.
• Net revenues decreased by 1% to $5.9 billion in Q2 2025 compared to Q2 2024.
• The provision for credit losses increased significantly by 99% to ($783) million in Q2 2025, primarily due to a credit reserve build in Single-Family.
• Investments net interest income decreased by 12% in Q2 2025 due to lower income from securities purchased under agreements to resell, driven by a decrease in short-term interest rates.
• Non-interest income decreased by 42% in Q2 2025, primarily due to lower revenues from held-for-sale loan purchase and securitization activities and impacts from interest-rate risk management activities.
• Single-Family segment net income decreased by 8% year-over-year to $2.1 billion.
• Multifamily segment net income decreased by 39% year-over-year to $0.3 billion.
• The Single-Family provision for credit losses was driven by lower estimated market values of single-family properties based on Freddie Mac's internal house price index and lower forecasted house price growth rates.
• The Multifamily provision for credit losses was driven by new loan purchase commitment and acquisition activity, coupled with deterioration in the credit performance of certain delinquent loans.
• The Single-Family serious delinquency rate increased to 0.55% as of June 30, 2025, from 0.50% as of June 30, 2024, due to higher serious delinquency rates for loans originated during 2022 and later, and lingering impacts from hurricanes in late 2024.
• The Multifamily delinquency rate increased to 0.47% at June 30, 2025, from 0.40% at December 31, 2024, primarily due to an increase in delinquent floating rate loans and small balance loans.
• Forecasted house price growth rates declined significantly, with the 12-month forward rate at 1.3% (down from 2.7%) and the 13to 24-month forward rate at 0.4% (down from 3.3%).
• A material weakness in internal control over financial reporting exists due to the inability to ensure timely communication of information from FHFA to Freddie Mac's management while under conservatorship.

Risks

• The conservatorship has no specified termination date, and the future business model, including continued existence, remains uncertain.
• Actions by the federal government (FHFA, Treasury, Congress) and state governments can significantly affect operations, business activities, financial condition, and results.
• Changes in economic and market conditions, including interest rates, volatility, spreads, employment rates, immigration policy, inflation, and house prices, can adversely affect financial results.
• Changes in the fiscal and monetary policies of the Federal Reserve, including target interest rates and agency MBS/CMBS holdings, pose a risk.
• Changes in Freddie Mac's or the U.S. government's credit ratings can impact the company; Moody's downgraded Freddie Mac's senior unsecured debt rating to Aa1 from Aaa in May 2025.
• Changes to capital requirements under the ERCF and their potential effects on business strategies are a risk.
• The ability to maintain the security and resiliency of operational systems and infrastructure against cybersecurity incidents or system errors is critical.
• The adequacy of the risk management framework, including the regulatory capital framework and internal models for measuring risk, is a concern.
• Managing mortgage credit risk, including the effect of changes in underwriting and servicing practices, is an ongoing challenge.
• Geographic concentrations of the mortgage portfolio expose the company to local economic conditions, property insurance market changes, and state/municipal laws limiting foreclosure/eviction.
• Hedge accounting programs may not be effective in reducing earnings volatility, and hedges may fail, leading to significant earnings variability.
• Reliance on U.S. Financial Technology, LLC (Common Securitization Solutions, LLC) and the CSP for Single-Family securitization activities, with limited influence over their board decisions, presents operational risk.
• The occurrence of catastrophic events or natural disasters in areas with significant mortgage portfolio concentrations could lead to uninsured or underinsured losses.
• Ongoing legal proceedings, including a class action lawsuit regarding the Purchase Agreement, could result in substantial damages; a jury awarded $313 million in compensatory damages in August 2023, for which an accrual has been recorded.
• A material weakness in internal control over financial reporting persists due to structural limitations in communicating information from FHFA to Freddie Mac's management for timely disclosure while under conservatorship.

Future Outlook

The future of Freddie Mac remains uncertain due to its ongoing conservatorship, which has no specified termination date. The company cannot predict if or when potential transactions, such as a public offering of equity securities or an exit from conservatorship, might occur or on what terms. FHFA is expected to continue modifying or rescinding guidance and requirements for the Enterprises, with an uncertain impact. Freddie Mac is also working with stakeholders to implement the use of the VantageScore 4.0 credit model for mortgages. Forecasted house price growth rates are lower for the next 12-24 months, indicating potential headwinds for credit quality.

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 [public offering, exit from conservatorship] could take place or on what terms."
• "While we continue to monitor regulatory and policy developments, we cannot predict the accuracy, timing, or impact of such statements or any related policy actions."
• "We continue to manage interest-rate risk related to financial instruments primarily funded by debt as before, targeting a low level of interest rate exposure as measured by our models."
• "For all other financial instruments, we manage interest-rate risk to a target duration, which reduces our long-term earnings volatility related to changes in overnight rates."
• "We believe that our condensed consolidated financial statements for 2Q 2025 have been prepared in conformity with GAAP."

Industry Context

Freddie Mac operates as a key player in the U.S. housing and mortgage market, fulfilling its mission to provide liquidity, stability, and affordability. The market is currently influenced by declining forecasted house price growth rates and rising delinquency rates in both single-family and multifamily segments. Regulatory changes by FHFA, including the rescission or modification of guidance on unfair practices, climate-related risk, and fair lending, are reshaping the operational landscape for government-sponsored enterprises. The industry is also adapting to the mandated adoption of the VantageScore 4.0 credit model. Furthermore, challenges in property insurance markets, with increasing premiums and reduced availability in certain high-risk areas, are impacting the broader housing ecosystem.

Comparison to Industry Standards

• The filing mentions Fannie Mae as a comparable entity, particularly in the context of resecuritization trusts and the alignment of prepayment speeds and pricing performance for Uniform Mortgage-Backed Securities (UMBS).
• Freddie Mac's Multifamily segment exceeded FHFA's minimum requirement of 50% for mission-driven affordable housing, with approximately 72% of YTD 2025 activity meeting this criterion.
• Moody's downgraded Freddie Mac's senior unsecured debt rating to Aa1 from Aaa in May 2025, following a similar downgrade of the U.S. sovereign credit rating, indicating alignment with broader government credit assessments.
• Fitch Ratings revised the Outlook of Freddie Mac's Multifamily division commercial master servicer rating of CMS1 and commercial special servicer ratings of CSS1to Negative from Stable, reflecting a more cautious view on the multifamily servicing sector.
• Market indicators from the National Association of Realtors, U.S. Census Bureau, Mortgage Bankers Association, Federal Reserve, Moody's Analytics, and Real Capital Analytics Commercial Property Price Index (RCA CPPI) are used to contextualize Freddie Mac's performance against broader housing and mortgage market trends.

Corporate Governance

Legal Proceedings

• **Ohio Public Employees Retirement System v. Freddie Mac, Syron, et al.**: A putative securities class action lawsuit filed January 18, 2008, alleging false and misleading statements. The Sixth Circuit reversed a prior summary judgment in April 2023, remanding the case. Defendants filed motions for summary judgment on May 3, 2024, which remain pending. The trial is scheduled to begin on October 6, 2025.
• **In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations**: A consolidated class action lawsuit by private investors against FHFA, Fannie Mae, and Freddie Mac, alleging breach of contract and other claims related to the net worth sweep dividend provisions. A jury returned a verdict on August 14, 2023, awarding $282 million to Freddie Mac junior preferred shareholders and $31 million to common shareholders. Freddie Mac recorded a $313 million accrual for this judgment in 2023. The District Court entered final judgment on March 20, 2024. Defendants filed an appeal on April 11, 2025, and plaintiffs filed their own appeals on April 25, 2025. Briefing for the appeal will be completed in February 2026.
• **Reid and Fisher v. United States of America and Federal Home Loan Mortgage Corporation**: A derivative lawsuit filed February 26, 2014, alleging the net worth sweep dividend provisions constitute an unlawful taking. The Court of Federal Claims dismissed the case with prejudice on September 1, 2023. Plaintiffs filed a notice of appeal on October 31, 2023, and the appeal has been fully briefed since May 22, 2024, and remains pending.

Related Party Transactions

• Freddie Mac operates under conservatorship with FHFA as its Conservator, a fundamental related party relationship.
• The Purchase Agreement with Treasury, under which Freddie Mac issued senior preferred stock and a warrant, is critical for solvency and liquidity, representing a significant ongoing related party arrangement.
• The 'net worth sweep' dividend provisions, implemented via amendments to the Purchase Agreement, dictate the payment of Freddie Mac's net worth to Treasury, directly impacting capital and retained earnings.

Stakeholder Impact

• **Shareholders**: Experienced a decline in net income, and the ongoing legal proceedings related to the Purchase Agreement, including a $313 million accrual for a jury verdict, directly impact shareholder value and rights, particularly for common and junior preferred stockholders. Uncertainty regarding potential equity offerings or exit from conservatorship also affects shareholder outlook.
• **Mortgage Borrowers/Homeowners**: Freddie Mac's mission to provide liquidity and affordability continues to support access to mortgage funding. Loss mitigation activities, such as payment deferral plans and loan modifications, assist distressed borrowers in avoiding foreclosure.
• **Renters**: Support for multifamily housing helps maintain the supply of affordable rental units and assists distressed renters in avoiding eviction.
• **Lenders/Originators**: Freddie Mac's continued purchase of mortgage loans provides essential liquidity to lenders, enabling them to originate new loans and refinancings.
• **Third-Party Investors**: Securitization activities and credit risk transfer programs continue to transfer interest-rate and credit risks to third-party investors, affecting their investment opportunities and risk exposure.
• **Regulatory Authorities (FHFA, Treasury, SEC, HUD)**: These bodies maintain significant oversight and influence over Freddie Mac's operations, capital, and strategic direction, with recent regulatory changes impacting compliance and operational requirements.
• **Employees**: Salaries and employee benefits remain a significant operational expense, indicating continued employment, though no specific direct impact on employees beyond general operations is detailed.

Next Steps

• Continue to monitor regulatory and policy developments.
• Work with stakeholders to implement the use of the VantageScore 4.0 credit model for mortgages.
• The trial in the Ohio Public Employees Retirement System v. Freddie Mac, Syron, et al. lawsuit is scheduled to begin on October 6, 2025.
• Briefing for the appeal in the D.C. lawsuit (In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations) will be completed in February 2026.

Key Dates

Recommendation

The filing reveals a notable deterioration in financial performance, marked by a 14% drop in net income and a near doubling of credit loss provisions, driven by declining house price forecasts and rising delinquencies in both single-family and multifamily portfolios. The company continues to operate under conservatorship with an uncertain future and a significant capital shortfall under regulatory requirements. Ongoing legal liabilities, including a $313 million accrual from a recent jury verdict, further weigh on the financial outlook. While the company fulfills its mission by providing liquidity to the housing market, the adverse financial trends, coupled with persistent regulatory and structural uncertainties, suggest a negative outlook for investors.

Keywords

Freddie Mac, Mortgage, Housing Market, SEC Filing, 10-Q, Financial Results, Credit Risk, Mortgage Portfolio, Single-Family, Multifamily, Conservatorship, FHFA, Treasury, Capital Requirements, Delinquency Rates, Credit Enhancement, Securitization, Interest Rates, Risk Management, Financial Services, GSE, US Housing, Mortgage-Backed Securities, MBS, CMBS, Loan Origination, Loan Servicing, Capital Buffer, Net Worth, Liquidity, Financial Performance, Earnings, Revenue, Credit Losses, House Prices, Loan-to-Value, Debt-to-Income, Credit Score, Derivatives, Hedge Accounting, Legal Proceedings, Corporate Governance, Internal Controls