24.4.2003: Meldung: Freddie Mac: Business Information for First Quarter 2003
Thursday April 24, 8:23 am ET
Freddie Mac"s Risk Profile Remains Low Provides Update on Restatement Process
MCLEAN, Va., April 24 -- Freddie Mac (NYSE: FRE - News) today reported business performance and risk measures for first quarter 2003. Freddie Mac also provided an update on its restatement process. As previously reported, the corporation will release its first quarter 2003 earnings after restated 2002 results are issued.
First Quarter 2003 Business Highlights
* Freddie Mac"s retained portfolio grew by $1 billion during first quarter
2003, representing annualized growth of 1 percent. This modest growth
reflects a decline in the returns available on mortgage investments and
high mortgage prepayments. The corporation continues to anticipate
retained portfolio growth of 8 to 12 percent in 2003.
* Freddie Mac"s Total PC portfolio declined by $9 billion (or at a 3
percent annualized rate) during first quarter 2003. This decline
resulted primarily from lower than typical market share, which is
expected to return to more normal levels over the course of the year.
* Freddie Mac"s level of interest-rate risk remained low. Its average
portfolio market value sensitivity ("PMVS") was 2.59 percent in first
quarter 2003. In addition, Freddie Mac"s average duration gap remained
between zero and minus one month for each month in first quarter 2003.
* Freddie Mac"s credit risk indicators continued to demonstrate its
conservative credit profile. The corporation"s non-credit-enhanced
single-family delinquency rate was 0.30 percent and its multifamily
delinquency rate was 0.01 percent at the end of February 2003.
"Freddie Mac"s exceptional financial strength positions us well to play a critical role in what we expect will be another record year in the mortgage market," said Leland C. Brendsel, Freddie Mac"s Chairman and Chief Executive Officer. "We are making progress on our previously announced restatement process and remain committed to delivering audited financial statements to investors as quickly as possible. In addition, we are taking steps to strengthen our accounting expertise and our internal accounting processes and related controls to address matters related to the restatement. Martin F. Baumann, our new Executive Vice President - Finance, is overseeing this effort."
"Despite historical lows in mortgage rates and near record volumes, Freddie Mac consistently maintained very low levels of interest-rate and credit risk," added David W. Glenn, Vice Chairman and President. "And during this period, we financed homes for approximately one million families."
Freddie Mac is continuing with its previously announced restatement process in conjunction with the related re-audit by its new auditor, PricewaterhouseCoopers. The corporation is continuing the communications noted in its January 27, 2003 press release with OFHEO, the NYSE and the SEC related to the restatement and re-audit. The corporation continues to expect that the likely cumulative effect of the restatements will be to materially increase reported earnings for prior periods. In addition, as previously announced the corporation expects significant volatility in reported quarterly earnings for those periods. The corporation further expects that adjustments affecting its income will relate substantially to changes in the timing of income recognition, and as a result cumulative increases related to these adjustments will have offsetting effects in future periods. The balance sheet also will be affected by these and other adjustments. In addition, Freddie Mac expects that the cumulative adjustments for the restated periods will increase the corporation"s capital surplus under its regulatory minimum capital requirement as of the end of 2002.
In connection with the restatement process, since January 2003 the corporation has been undertaking a comprehensive review of its financial statements. As a result of this review, the corporation is making accounting policy changes and adjustments in addition to those previously identified. These corrections will be reflected in its restated financial results. While this review and the related changes and adjustments have increased the workload associated with the restatement process, the corporation continues to expect to release its restated results shortly after the end of the second quarter of 2003.
Additional information about the restatements and related re-audit is available in Freddie Mac"s press releases and Information Statement Supplements dated March 25, 2003 and January 27, 2003.
Total Mortgage Portfolio
Freddie Mac"s total mortgage portfolio (retained portfolio plus PCs held by other investors) declined at a 1 percent annualized rate in first quarter 2003, from $1.311 trillion at December 31, 2002 to $1.307 trillion at March 31, 2003. This decline reflects new business purchase volume of $173 billion in first quarter 2003, up from $151 billion for first quarter 2002 and down from $239 billion for fourth quarter 2002. Total mortgage portfolio growth also was affected by liquidations of $177 billion in first quarter 2003, up from $86 billion in first quarter 2002 and down from $189 billion in fourth quarter 2002.
The retained portfolio grew at a 1 percent annualized rate in first quarter 2003, from $568 billion at December 31, 2002 to $569 billion at March 31, 2003. The modest growth reflects the corporation"s commitment to its investment discipline. Freddie Mac deploys capital only when long-term economic returns are attractive and it can prudently manage risk.
During first quarter 2003, attractive long-term investment opportunities were sporadic, and liquidations were high as a result of continued strong refinancing activity. Mortgage-to-debt spreads improved somewhat in March. Purchase commitments for the retained portfolio were $32 billion in March 2003, up from $9 billion in February 2003.
Spreads on Freddie Mac debt relative to other fixed-income benchmarks continued to be very attractive in the first quarter.
Freddie Mac repurchased $6.5 billion of long-term debt during first quarter 2003. This compares to debt repurchases of $3.3 billion in first quarter 2002 and $7.3 billion in fourth quarter 2002.
Total PCs declined at a 3 percent annualized rate in first quarter 2003, from $1.082 trillion at December 31, 2002 to $1.073 trillion at March 31, 2003.
The Total PC, net portfolio (which excludes PCs held in the retained portfolio) declined at a 3 percent annualized rate from $743 billion at December 31, 2002 to $738 billion at March 31, 2003.
Freddie Mac"s market share relative to Fannie Mae was 32 percent in first quarter 2003, down from 42 percent in first quarter 2002 and 41 percent in fourth quarter 2002. The decline was primarily driven by the implementation of higher fees and weak PC security price performance early in the first quarter. Over the balance of the year, the corporation expects its market share to return to more typical levels. Market share for March 2003 was 37 percent, up from 29 percent in February 2003.
In 2003, the corporation expects the growth rate of its Total PC portfolio to be close to the expected 9 to 11 percent growth in mortgage debt outstanding.
Interest-Rate Risk Management
Freddie Mac continues to manage interest-rate risk conservatively. The corporation hedges a significant portion of the interest- rate risk associated with its retained portfolio through the use of callable debt and derivatives and purchases mortgage securities that are less sensitive to prepayments. Freddie Mac monitors its portfolio daily and actively rebalances when appropriate to maintain its low risk profile.
Despite the record low mortgage rates experienced during the first quarter, the corporation"s primary indicator of interest-rate risk -- PMVS -- remained at consistently low levels. PMVS averaged 2.59 percent in first quarter 2003, compared to 2.74 percent in first quarter 2002 and 3.28 percent in fourth quarter 2002. In addition, Freddie Mac"s duration gap averaged approximately negative 1 month in first quarter 2003, compared to zero months in first quarter 2002 and fourth quarter 2002.
Credit Risk Management
Freddie Mac remains well protected against mortgage credit risk. The corporation"s predominant focus on the prime sector of the mortgage market provides it with expertise in managing the credit risk associated with these loans. Freddie Mac"s credit performance continues to reflect the benefits of significant homeowners" equity, credit enhancements, geographic diversification and automated underwriting.
Single-Family Delinquencies -- Freddie Mac"s single-family delinquency rate on loans without credit enhancement was 0.30 percent for February 2003, compared to 0.28 percent for March 2002 and 0.29 percent for December 2002. Beginning in first quarter 2003, loans with primary mortgage insurance as the sole source of credit protection will no longer be part of what was formerly known as "at-risk." These loans will now be categorized as credit-enhanced. Prior period results have been restated to reflect this reporting change. The corporation"s single-family, total delinquency rate, which includes loans with and without credit enhancement, was 0.82 percent for February 2003, compared to 0.62 percent for March 2002 and 0.77 percent for December 2002.
Multifamily Delinquencies -- Freddie Mac"s multifamily delinquency rate was 0.01 percent for February 2003, down from 0.14 percent for March 2002 and 0.13 percent for December 2002.
Credit Sensitivity -- Freddie Mac"s credit risk sensitivity estimates the present value of the increase in credit losses that would result from an immediate 5 percent decline in nationwide house prices (see the corporation"s Information Statement Supplement dated November 14, 2002 for a discussion of the assumptions and models used in this sensitivity analysis). As of December 31, 2002, the net present value of credit losses would increase by $881 million before receipt of primary mortgage insurance and other credit enhancements and by $278 million after receipt of primary mortgage insurance and other credit enhancements.
Freddie Mac manages its capital account to ensure a strong capital base and sufficient capital to support future growth opportunities.
Freddie Mac must meet the higher of its minimum and risk-based capital requirements. As of December 31, 2002, Freddie Mac had surplus capital relative to both standards. During March 2003, OFHEO reported that Freddie Mac"s minimum capital surplus, the excess of the corporation"s core capital over the minimum capital requirement, was $2.2 billion at December 31, 2002.
In addition, OFHEO stated that Freddie Mac"s total capital exceeded the risk-based capital standard by $19.5 billion as of December 31, 2002. Freddie Mac"s surplus against the risk-based capital standard reflects its low level of interest-rate and credit risk.
Freddie Mac"s minimum and risk-based capital requirements for December 31, 2002 are based upon unaudited financial results. At the end of the audit process, OFHEO will re-examine the classifications to determine what, if any, adjustments need to be made.
Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to support homeownership and rental housing. Freddie Mac purchases residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage securities and debt instruments in the capital markets. Over the years, Freddie Mac has opened doors for one in six homebuyers and more than two million renters in America.
Freddie Mac"s earnings releases and other financial disclosures are available on the Investors" page of its website at www.freddiemac.com.
Source: Freddie Mac