Benefiting from higher loan guarantee income and lower derivative losses, Freddie Mac said Tuesday it made $993 million in the second quarter, a dramatic reversal from its $354 million loss a quarter earlier.
Freddie's derivatives portfolio lost $2 billion in the second quarter, compared with a $4.6 billion loss in the first quarter.
"Without much market-related noise this quarter, the strong and improving fundamentals of our businesses were evident," Don Layton, Freddie's CEO, told reporters during a conference call.
Fannie purchased $91 billion in single-family loans in the second quarter, up from $69 billion in the prior quarter. But the GSE bought half as many multifamily loans, as their level fell to $9 billion.
Freddie will pay a $933 million dividend to the U.S. Treasury under its senior preferred stock agreement in September.
In presenting its quarterly results, Freddie included "adjusted guarantee fee income" and "adjusted net interest income" to provide a clearer picture of how the company generate revenues through its investment portfolio and loan guarantee business.
Generally accepted accounting principles are "not all that helpful," Layton said in an interview Tuesday.
Under GAAP, almost all single-family guarantees and net interest income are combined. "It is really hard to figure out what is going on in the company in terms of how we generate our revenues," Layton said.
Under Freddie's adjusted guarantee fee income calculation, the company reported $1.63 billion in guarantee fee for the second quarter, up from $1.4 billion in the first quarter and $1.4 billion a year ago.
Guarantee fee income is expected to increase over the long term as guarantee fees on new loans are higher than the fees received on older vintages of mortgages that continue to run off.
The adjusted net interest income reflects the returns from of it $320 billion retained investment mortgage portfolio, which was $671 million in the second quarter, down from $900 million in the first quarter.
Freddie and Fannie Mae are required to shrink their investment portfolios to $250 billion by 2018.
"The adjusted net interest income will decline until it levels off when we reach the mandated level of the investment portfolio," Layton said.
Meanwhile, adjusted guarantee fee income "will continue to rise with some volatility as interest rates go up or down over the median to long run," he said.