Much of Freddie Mac's stellar $4.2 billion second-quarter earnings are the result of how certain hedging income is recognized on its balance sheet, or what CEO Donald Layton called "accounting noise." However, Freddie's operating fundamentals are "strong and improving."

"Segment earnings are up, purchase volumes are up, and the risk profiles are significantly better," Layton said Tuesday during a conference call with investors.

In addition to posting net income of $4.2 billion in the second quarter, Freddie Mac had the strongest new single-family funding volumes it has seen in a year, according to its earnings report. Freddie posted net income of $1.4 billion during the same period a year ago, and net income of $524 million during the first quarter of 2015.

"We had very good underlying earnings again this quarter. But unlike several previous quarters, we were positively impacted by the stronger performance of many market-sensitive components of our business," Layton said.

Freddie funded $101 billion in newly originated, single-family mortgages during the second quarter, up from $59 billion a year ago and $80 billion in the first quarter. But $62 billion of the $101 billion funded in the quarter came from refinancing, a segment that's expected to decline in the second half of this year.

"The increase in Freddie Mac's new single-family business volume reflects the substantial increase in conventional mortgage activity — up 30% in the first half of 2015 compared to the first half of 2014 — and an increase in our GSE market share," Freddie Mac spokesperson Lisa Gagnon said in an emailed response to questions.

In addition, home sales are on pace for the highest total since 2007, Gagnon said in an email. The purchase mortgage activity needed to support that growth could offset an expected decline in refinancings.

Freddie also resumed purchasing mortgages originated with down payments as low as 3%, but Layton said during the call this has not materially added to its loan volume.

Freddie Mac continues to provide gains for the U.S. government, which holds it and fellow GSE Fannie Mae in conservatorship. Both GSEs have been shedding some of their credit risk through financial instruments that transfer risk to the private sector and nonperforming loan sales.

Freddie historically has been the outpaced in size by fellow GSE Fannie Mae, which is also due to report earnings this week. But Freddie has been competing more aggressively with Fannie since late last year. In the second quarter, for example, it was the first of the two GSEs to remove automated underwriting system fees.

Regulatory efforts are underway to combine Fannie Mae and Freddie Mac's securitized mortgages in part due to liquidity problems with Freddie Mac MBS, but a recent Freddie Mac investor report based on the GSEs' monthly volume summaries shows its bond issuance market share has climbed in recent years.

Freddie Mac had a 42% issuance share through May, up from 41% last year and 35% in 2012.

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