Freddie Mac and Household International Inc. continued the mortgage earnings party Wednesday by reporting record second-quarter results.
Household, a Prospect Heights, Ill., specialty finance company, reported that its second-quarter net income rose 14% from a year earlier, to $439 million, and its per-share earnings climbed 16%, to 93 cents, matching analysts' consensus estimate. Freddie's earnings rose 22%, to $769 million, or $1.03 per share, beating the consensus by a penny.
The announcements continued a trend of strong profit reports from mortgage- and housing-related companies. So far, seven major mortgage companies have reported an average second-quarter net income gain of 31%.
Adding fizz to a market that some have called the best in history, Angelo R. Mozilo, chairman and chief executive officer of Countrywide Credit Industries Inc., said in a press release Wednesday that he expects the "robust" refinancing market to stay that way. "Market fundamentals support a sustained refinance boom," he said.
Mr. Mozilo also reaffirmed that his company expects to report record per-share earnings of $1.15 to $1.20 for its fiscal second quarter, which will end Aug. 31. He said the business environment has never been more favorable to Countrywide and that he expects market conditions to remain "very strong" in spite of some "contradictory opinions" in the marketplace.
In a conference call to analysts and investors, William Aldinger, chairman and CEO of Household, credited the company's diversified business lines for its 12th straight quarter of record results. The earnings "show that our business model works in a strong economy and a weak economy," he said.
Household's total managed portfolio, which includes credit cards and other loan products, grew 15% from a year earlier, to $91.5 billion.
David Sochol, an analyst at Legg Mason Wood Walker in Baltimore, said that Household's earnings were also fueled by the performance of its subprime lending business, which makes up 43.5% of its managed portfolio. The subprime portfolio, which grew 17%, was the strongest contributor to overall portfolio growth, he said.
"They had positioned themselves to do well in a slowing economy by focusing more on the real-estate-secured product, by raising their underwriting standards, and by getting the pricing they needed," Mr. Sochol said.
Household also is benefiting from reduced competition in the subprime market as many players pulled out of the business or closed their doors entirely in recent years, he said.
Freddie's net income and operating earnings have set records in each of the past 27 quarters. The McLean, Va., government-sponsored enterprise reported its results a day after its sister GSE, Fannie Mae, reported nearly 20% growth in net income, to $1.314 billion.
Thomas O'Donnell, an analyst at Citigroup Inc.'s Salomon Smith Barney unit, said Freddie and Fannie are "blowing the doors off" market assumptions that they would achieve quarterly percentage growth in the mid-teens.
Freddie officials said the surge was fueled by record portfolio growth. Its total mortgage portfolio, $1.05 trillion, and retained portfolio, $444 billion, each grew 22%.
Mr. O'Donnell agreed with Freddie officials that portfolio growth was the primary contributor to the strong results. "The real story in the quarter was Freddie's record portfolio growth," he said. "It is going to be an extraordinary year for portfolio growth, and that will be a major driver for profits."
The GSE now expects its retained portfolio to grow by at least $80 billion this year, he said.
Nonetheless, Freddie also reported credit losses of $14 million, which would project to an annual loss of 0.6 basis point on its average mortgage portfolio. Freddie also took a charge of 5 cents per share for debt repurchases.
Household officials had predicted this year that its earnings would grow 13% to 15% for the full year. Because of its second-quarter results, Mr. Aldinger said, he is "confident" that full-year growth will be 15%.