Freddie Mac on Tuesday beat the analysts' consensus by a penny, announcing second-quarter earnings of 84 cents a share. Its net income of $631 million was up 14% over the same period last year.
Freddie's report looked especially strong coming a week after its bigger rival, Fannie Mae, reported earnings that hit the Wall Street consensus but included special items that created some investor confusion.
"It looks like a nice, quiet, solid quarter," said Kenneth A. Posner, an analyst with Morgan Stanley Dean Witter. "The business models for Fannie and Freddie are continuing to hum along and produce good growth and good margins."
Freddie's second-quarter income was up 3% from the first quarter's $608 million, or 81 cents per share. In the fourth quarter of last year, Freddie reported a net income of $594 million.
Thomas O'Donnell, an analyst with Salomon Smith Barney, said the quarter's biggest surprise was a lack of surprises. "It was a solid quarter, actually a ho-hum quarter," and that's just what investors want, he said.
Freddie's total revenues reached $1.107 billion, with net interest income totaling $696 million, and management and guarantee fee income ringing in at $368 million. Other income totaled $43 million.
Howard L. Shapiro, an analyst with Goldman Sachs, said the earnings report came in as expected in most areas, though credit quality and delinquency rates were a positive surprise. Credit costs and delinquency rates continue to fall for both Fannie and Freddie, he said.
"What that tells me is credit is not going to be a concern for probably the next two years, almost by definition," Mr. Shapiro said.
William L. Stephens, vice president of shareholder relations at Freddie Mac, said delinquency rates in the second quarter dipped to their lowest point since the company started reporting them in 1995. Though he attributed the improvements in large part to the strong economy, he said Freddie Mac has dedicated a lot of effort to improving its underwriting and loss mitigation.
In addition, analysts pointed to Freddie's retained mortgage portfolio - "the engine of earnings," according to Mr. O'Donnell - which grew $15 billion, or 18%, in the second quarter.
Still, with growing legislative and regulatory pressure on the GSEs, the companies' ability to churn out double-digit earnings growth, quarter after quarter, is not a given.
"Longer term, there is a higher level of uncertainty regarding the growth prospects and the structures of these companies," Mr. O'Donnell said, "but concern about political risk has become exaggerated." Mr. O'Donnell said that earnings such as the second-quarter results should calm exaggerated political fears in the near term.
"Nowhere else in the world can you get a 30-year fixed-rate mortgage for as low as 5% down; nowhere else in the world has a homeownership rate of 67%," Mr. Stephens said. "If the GSEs were not here, we would not be living in that kind of world. I think that is our best political support."
